Supreme Court: Essence Of Deemed Export Benefits Lay In Supply Of Goods To Power Projects, Not In Power Procurement Arrangements

The Supreme Court held that the essence of deemed export benefits lay in the supply of goods to power projects, not in power procurement arrangements.

The Court held thus in Civil Appeals preferred against the Common Judgment of the Appellate Tribunal for Electricity (APTEL) owing to rejection of the claim(s) for relief under Article 13 of the Power Purchase Agreement (PPA) executed with the Punjab State Power Corporation Limited (PSPCL), and primarily the challenge to the post-bid withdrawal of fiscal incentives which were allegedly available earlier under the Foreign Trade Policy (FTP) and their classification as a “Change in Law” event under the PPA.

The two-Judge Bench of Chief Justice of India (CJI) B.R. Gavai and Justice Augustine George Masih observed, “A perusal thereof, clarifies that the essence of deemed export benefits lay in the supply of goods to power projects, not in power procurement arrangements. A collective and comprehensive reading of Para 8.2, Para 8.4.4(iv) and Para 8.6 of the FTP establishes that the Independent Power Producer stage is in reference to the main contractor vis-à-vis supply of goods to the concerned project, while the Engineering Procurement Contract stage concerns the supply by a sub-contractor to the Engineering Procurement Contract contractor.”

The Bench said that the fourth foundational prerequisite to avail the deemed export benefits, as stipulated through Para 8.2, read with Para 8.6 of the FTP mandates that the supply of goods must be effected either by the main contractor or the sub-contractor to the concerned project.

Senior Advocates C.S. Vaidyanathan and A.N.S. Nadkarni represented the Appellant while Senior Advocate M.G. Ramachandran represented the Respondents.

Brief Facts

The Appeals were filed by two companies namely, Nabha Power Limited (NPL) and Talwandi Sabo Power Limited (TSPL). They were Special Purpose Vehicles (SPVs) which were formulated to develop the concerned power projects. This was done under Section 63 of the Electricity Act, 2003 through Tariff-Based Competitive Bidding. PSPCL is one of the successors of the Punjab State Electricity Board (PSEB) and is a state-owned generating and distributing company in Punjab. The Government of India, exercising its powers under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 i.e., FTP Act, had notified the Foreign Trade Policy, 2009-2014 in 2009 and the Union Cabinet reduced the threshold qualification as a Mega Power Project to 500 Mega Watt from 1,000 Mega Watt for single location projects under the Mega Power Policy, 2006 (MPP). On the same day, there was a press release by the Press Information Bureau (PIB) that the Union Cabinet has taken a decision that it is not mandatory for an inter-State sale of power from a project to be eligible under the MPP.

Pursuantly, NPL sought grant of status as a Mega Power Project from Ministry of Power, Government of India, which was granted to it in 2010. In 2011, Directorate General of Foreign Trade (DGFT) convened a Policy Interpretation Committee (PIC) which opined that Terminal Excise Duty exemptions under the FTP would not be available for the supplies made to a non-MPP and any such duty shall not be refunded in any manner including as a drawback under Paragraph 8.3(b) of the FTP. Hence, public notices were issued in this regard. Since the legalities had made NPL ineligible for the assumed benefits on their end, it moved a Petition before the State Commission seeking a declaration that the Mega Power benefits were factored into the bid and hence did not warrant pass-through to PSPCL. However, the said Petition was dismissed and on an Appeal, APTEL remanded the matter to State Commission, which reiterated its earlier conclusions. The APTEL then rejected the Appellant’s claims, and therefore, the case was before the Apex Court.

Reasoning

The Supreme Court in the above context of the case, noted, “… 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 further noted that the third essential criterion for availing the said deemed export benefits is “supply of goods” to a power plant, as is contemplated under Para 8.2(g) of the FTP.

“However, from the original pleadings of the Appellants before the APTEL, it is established that they had made an unsuccessful attempt to argue that the whole power plant under their concerned Project fell within the ambit of definition of supply of “goods”. Contemplating their contention on the basis that the power plant falls within “capital goods”, it would neither be permissible nor viable to supply a power plant to itself as per the mandate of the FTP and especially, in the light of Para 8.2(g) of the FTP contemplating categorization of “supply of goods” to power projects and refineries not covered in Para 8.2(f) which, in turn, deals with supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits import of such goods at zero customs duty”, it added.

The Court said that an entitlement to the deemed export benefits only accrue when the goods, as manufactured by the main contractor, are supplied to the Project, herein being either the NPL or TSPL, or in the alternative, the goods are manufactured by the sub-contractor and supplied directly to the project or through the main contractor.

“However, it appears that before the forums of law below, and even at the time of bidding, the to-be then constructed Power Plant itself was deemed as the concerned capital goods for the deemed export benefits, implying that there was no distinct supply of goods by either a main contractor or a sub-contractor thereof. Rather, a claim to seek the benefits in respect of the entire power plant was made. Such a situation of suo moto acclaimed manufacturing in the Project’s own right shall not stand the instant test”, it observed.

The Court remarked that reliance on Tariff Based Competitive Bidding by the Appellants for selection of the power project developer cannot be equated with the mandate of the ICB for supply of goods and is, therefore, a misnomer and a misplaced plea raised on their part.

Conclusion

“Considering the above contentions as raised before us albeit for the first time, the Appellants, have clearly failed to establish the procurement of “supply of goods” as per the mandate of ICB either at the stage of Independent Power Producer or Engineering Procurement Contract, owing to the fact that such procurement of the components was done through directly entering into contract(s) with their subsidiaries or joint venture or related companies, we do not find any reason to further deal with the contentions raised by the Appellants vis-à-vis other prerequisites as all the essential pre-conditions unless ticked would not render them eligible for the benefit claimed”, it also said.

The Court, therefore, concluded that even assuming the case of the Appellants to the said effect to be good in law and that notification(s) would indeed amount to a “Change in Law”, it is merely an academic exercise without any impact on the legal position of the Appellants and they were, and still are not, entitled to any deemed export benefits under the FTP for their inability to fulfil the concerned prerequisites.

Accordingly, the Apex Court dismissed the Appeals and refused to interfere with the impugned Judgment.

Cause Title- Nabha Power Limited v. Punjab State Power Corporation Limited and Others (Neutral Citation: 2025 INSC 1002)

Appearance:

Appellant: Senior Advocates C.S. Vaidyanathan, A.N.S. Nadkarni, AOR E. C. Agrawala, Advocates Mahesh Agarwal, Shri Venkatesh, Rohan Talwar, Shashwat Singh, Priya Dhankar, Naman Agarwal, Vishrov Mukerjee, and Pratyush Singh.

Respondents: Senior Advocate M.G. Ramachandran, AORs K. V. Mohan, Sunieta Ojha, Advocates Poorva Saigal, Reeha Singh, Gargi Kumar, Pragati Bhatia, and Vasudha Priyansha.

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