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Appellate Tribunal for Electricity (APTEL): In an appeal challenging the Telangana State Electricity Regulatory Commission’s (Commission) order denying Change in Law relief, the Division Bench of Seema Gupta, Officiating Chairperson and Virender Bhat, Judicial Member, set aside the Commission’s order denying Change in Law relief to the solar power developer and held that imposition of entry tax under the Telangana Tax on Entry of Goods into Local Areas Act, 2001 pursuant to the Supreme Court judgment in Jindal Stainless Ltd. v. State of Haryana, (2017) 12 SCC 1, constitutes a Change in Law event under Article 1.12 of the Power Purchase Agreement (PPA), thereby entitling the generator to consequential restitutionary relief.
Background
In 2001, the erstwhile State of Andhra Pradesh enacted the Andhra Pradesh Tax on Entry of Goods into Local Areas Act, 2001, the vires whereof was challenged, resulting in Sections 3 and 4 of the abovementioned Act, relating to levy of entry tax being declared unconstitutional by the Andhra Pradesh High Court on 31 December 2007. The judgment was challenged by the State of Andhra Pradesh before the Supreme Court by way of civil appeals and, since similar issues with conflicting High Court decisions had arisen in other States, all such matters were tagged together, with Jindal Stainless , being treated as the lead case. After Telangana was carved out as a separate State in 2014, it adopted the same legislation as the Telangana Tax on Entry of Goods into Local Areas Act, 2001. During pendency of the appeals before the Supreme Court, Northern Power Distribution Company of Telangana Ltd. issued a Request for Selection (RfS) on 27 August 2014 for procurement of solar power through competitive bidding.
Financial bid on 13 October 2014 was submitted by the appellant and was issued a letter of intent on 23 January 2015. Thereafter, a PPA dated 3 March 2015 was executed for establishment of a 30 MW solar power project with tariff. Subsequently, the Supreme Court in Jindal Stainless , upheld the validity of entry tax laws on 11 November 2016 on the grounds that it was in public interest. Thereafter, the Chief Tax Officer (CTO) issued show-cause notice and assessment orders in 2020 imposing entry tax upon the appellant for Financial Years (FYs) 2015-2016 and 2016-2017.
The appellant challenged the levy before the Telangana High Court and also issued a Change in Law notice dated 3 April 2020 to the distribution company (DISCOM). Thereafter, the appellant approached the Commission seeking declaration that levy of entry tax constituted a Change in Law event under PPA and seeking reimbursement of the additional financial burden. The Commission dismissed the petition aggrieved thereby the appellant approached this Tribunal.
Issue
Whether levy of entry tax under the Entry Tax Act, 2001 pursuant to Jindal Stainless constituted a Change in Law event under the PPA dated 3 March 2015 entered into between the appellant and the discom.
Analysis
The Tribunal observed the 2 major article under the PPA, and noted the scope and composition for both.
Interpretation of Tariff Provisions under Articles 2.2 and 2.3
Article 2.2 (Quoted Tariff) — It makes the discom liable to pay fixed tariff at ₹6.848/unit to the appellant based on 1) The bidder’s financial bid, and 2) Chosen tariff option (fixed for entire term). The appellant selected Option 1, according to which the tariff remains fixed at ₹6.848/unit for the entire duration of the agreement.
Article 2.3 (Tariff Payable) — This provides the tariff payable by the discom to include taxes, duties and other levies as applicable from time to time.
The Tribunal observed that there existed a minor but significant dichotomy between these 2 articles and that both provisions had to be interpreted harmoniously. Agreeing with the appellant that if the contract intended Article 2.3 to mean the same thing as Article 2.2, then the wordings of it would have been “tariff as quoted above is inclusive of all taxes without any alteration irrespective of imposition of any new tax/levy”.
The Tribunal referred to Supreme Court judgment in Nabha Power Ltd. v. Punjab State Power Corpn. Ltd., (2018) 11 SCC 508, for interpreting terms of the commercial contracts wherein it was held that it should not be an endeavour of commercial courts to look to implied terms of contract as normally a contract should be read as per its express terms and the implied terms is necessitated only when the Penta-test comes into play.
The Tribunal further reiterated the “Penta-test” for implying terms into a contract, namely, that 1) the implied term must be reasonable and equitable, 2) necessary to give business efficacy to the contract, 3) so obvious that it goes without saying, 4) must be capable of clear expression, and 5) must not contradict any express contractual term.
The Tribunal observed that interpreting Articles 2.2, 2.3 and 6.1(iv) of the PPA to mean that the quoted tariff included all future taxes and levies imposed during the subsistence of the PPA would eventually compel the power developer to spend a substantial portion of the tariff received from the discom towards newly imposed taxes and that such an interpretation would make the PPA absolutely inequitable, unconscionable as well as unreasonable. These provisions had to be interpreted in a manner that lends business efficacy to the PPA and reflects the parties real intent.
On a harmonious reading of the clauses, the Tribunal noted that the parties intended the discom to pay the quoted tariff along with any taxes, duties or levies imposed after execution of the PPA. Such an interpretation is justified on the facts of the case, accords with commercial sense, and satisfies the Penta-test laid down in Nabha Power.
“Any contrary interpretation would not only flout business common sense but also would be contrary to the contemplation of the parties as well as their real intendment at the time of execution of the PPA.”
Applicability and Effect of Change in Law Events
It was further noted by the Tribunal that the expression quoted tariff in Article 2.2 would continue to apply only so long as no unforeseen financial burden arising from a Change in Law event, force majeure event, or any other unanticipated event during the bidding process was imposed upon the parties, the impact thereof cannot be denied to the power developer.
The Tribunal observed that reading Articles 2.2 and 2.3 along with Article 1.12 (Change in Law clause) of the PPA repelled the respondent’s contention that introduction of a new tax or change in the quantum of tax would not amount to a “Change in Law” event. It was also observed that incorporation of Article 1.12 itself indicated that the parties contemplated situations where additional financial burden could arise and the affected power producer would be entitled to restitutionary compensation.
Rejecting the narrow interpretation suggested by the respondent to the term Change in Law, the Tribunal opined that the levy of entry tax constitutes a change in regulations/notifications within the meaning of Article 1.12 of the PPA, as it arises from a fresh enactment. Such imposition squarely falls within its ambit, and any narrow interpretation excluding new taxes from Article 1.12 is neither justified nor pragmatic.
The Tribunal noted the absence of any provision in the PPA providing that the parties cannot claim any relief in case of any Change in Law event as given in Article 1.12 and observed that,
“Absence of any such clause in the PPA cannot be held to the prejudice of the appellant so as to deny relief to it under Change in Law clause.”
It was observed by the Tribunal that once an event qualifies as a Change in Law under Article 1.12, the affected party would be entitled to restitutionary relief, and the absence of an express provision does not negate such entitlement. Any interpretation to the contrary would render the PPA unworkable and devoid of commercial sense.
The Tribunal reinforcing its reasoning, referred to Clause 4.2.4 of the National Tariff Policy, 2016, which provides that where any change in duties or cess after award of bids causes financial impact, such amount must ordinarily be allowed as a pass-through unless otherwise provided in the PPA.
Referring to Energy Watchdog v. CERC, (2017) 14 SCC 80, the Tribunal noted that the National Tariff Policy has statutory force under Section 3, Electricity Act, 2003 and its provisions must therefore be read into PPAs executed between generators and discoms. Consequently, the appellant could not be denied restitutionary relief arising from the Change in Law event merely because the PPA lacked an express provision granting such relief.
Decision
Allowing the appeal, the Tribunal set aside the Commission’s order and held that imposition of entry tax in Telangana through the Telangana Tax on Entry of Goods into Local Areas Act, 2001, read with Jindal Stainless , constituted a Change in Law event under Article 1.12 of the PPA. The matter was remanded to the Commission solely for determination of the extent of restitutionary relief payable to the appellant after hearing the parties, to be completed within 2 months.
[ACME Dayakara Solar Power (P) Ltd. v. Telangana ERC, 2026 SCC OnLine APTEL 34, decided on 13-4-2026]
Advocates who appeared in this case :
For the appellant: Sujit Ghosh Sr. Adv., Mannat Waraich, Ananya Goswami, Ashabari Basu Thakur, Himani Yadav
For the respondent: Somanadri Goud Katam, D. Abhinav Rao
