Isabella Mariam

The Division Bench of the Madras High Court, comprising Justice S.M. Subramaniam and Justice K. Rajasekar, disposed of an appeal filed by the Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) against an earlier order which directed it to approach the Central Electricity Regulatory Commission (CERC) for adjudication of an income tax-related dispute with NLC India Limited. The High Court declined to adjudicate the matter under Article 226 of the Constitution, citing that the dispute falls within the regulatory and adjudicatory domain of the CERC under Sections 79 and 178 of the Electricity Act, 2003.

In this case, TANGEDCO challenged the demand of approximately Rs.184 Crores raised by NLC India Limited through the PRAAPTI Portal, claiming it as reimbursement for income tax liabilities previously settled by NLC. The core issue before the Court was whether income tax liabilities embedded in power tariffs fell within the jurisdiction of the CERC.

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The appeal originated from W.P. No.7519 of 2023, wherein TANGEDCO questioned the legality of a demand uploaded on the PRAAPTI Portal by NLC India Limited. TANGEDCO, represented by Senior Counsel Mr. P. Chidambaram assisted by Mr. D.R. Arun Kumar, argued that the unilateral debit note raised for income tax reimbursement lacked prior consultation, details, and justification, thus violating principles of natural justice.

TANGEDCO submitted that the demand pertained to income tax and not to tariff or operational charges under the Power Purchase Agreements (PPAs). The learned counsel cited Section 79(1)(a) & (f) of the Electricity Act, 2003 to assert that the CERC does not possess jurisdiction to adjudicate income tax-related matters, which do not fall under the scope of tariff regulation or transmission licensing.

The appellant argued that the impugned demand was time-barred, lacked statutory basis, and was raised without the appellant's consent. It was contended that the disputed tax liabilities pertained to previous assessment years and should not be enforceable due to the bar of limitation. The counsel cited Andhra Pradesh Power Coordination Committee v. Lanco Kondapalli Power Limited [(2016) 3 SCC 468], wherein it was observed: "In the absence of any provision in the Electricity Act creating a new right upon a claimant to claim even monies barred by law or limitation, or taking away a right of the other side to take a lawful defence of limitation, the Court was persuaded to hold that ... claims ... 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."

NLC India Limited, represented by Senior Counsel Mr. Arvind P. Datar, assisted by Mrs. Janane G, Ms. Krishna Laasya, and Mr. Abhinov Vaidhyanathan, contended that income tax is a recoverable expense under the relevant tariff regulations. NLC relied on Clause 2.12 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2001 and Clause 10 of the 2004 Regulations, which permit recovery of tax from beneficiaries.

It was submitted that NLC availed a one-time settlement scheme by the Income Tax Department and subsequently raised the demand through the PRAAPTI Portal. NLC maintained that the disputed demand falls squarely within the tariff framework, and thus the appropriate authority for adjudication is the CERC.

The CERC had earlier dismissed NLC's petition (Petition No.135/MP/2023) on the ground that similar issues were sub judice before multiple High Courts. However, CERC observed that NLC could approach it for appropriate relief after the disposal of those writ petitions.

The appellate tribunal had previously stated in TNEB v. NLC Ltd. (Appeal No.49 of 2010) that "the Central Commission possesses the right not only to entertain such an application but also dispose the same in accordance with law by doing such acts which are necessary for its execution." The Tribunal concluded that reimbursement of income tax forms part of power tariff and that objections by beneficiaries could be adjudicated by the Commission.

The Division Bench observed that Clause 10 of the 2004 Regulations permits recovery of income tax directly by the generating company from the beneficiaries without prior application to the Commission. It further noted: "In case of any objections by the beneficiaries ... the generating company or the transmission licensee ... may make an appropriate application before the Commission for its decision."

The Bench examined the CERC's prior order in Petition No.135/MP/2023 and recorded: "We are inclined to dispose of the present petition. We, however, grant liberty to the Petitioner to approach this Commission for appropriate relief(s), on this count, after disposal of or any decision by the Hon’ble High Courts, in the writ petitions, as aforesaid."

The High Court stated that CERC is the competent forum to adjudicate the tax-related claims embedded within the tariff structure. It recorded: "Tax related claims are the components of tariffs and thus the writ Court is right in relegating the parties to approach the CERC for effective adjudication and to resolve the issues in the manner known to law."

On the appellant’s concern of power disconnection due to the disputed claim, the Court recorded the respondent’s submission: "On account of raising of debit note/invoice to the tune of Rs.184 Crores towards income tax, the Power Grid connectivity of TANGEDCO would not be disturbed."

The Court further noted: "Merely on the ground of non-payment of income tax arrears to the tune of Rs.184 Crores, the respondents cannot effect disconnection of electricity, which would cause great prejudice to the appellant."

Addressing the claim of limitation, the Bench reiterated that such issues could be effectively adjudicated before the CERC: "The appellant would get ample opportunity to adjudicate all the issues including the issues relating to re-determination of tax, limitation, etc. before the CERC."

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It concluded that a judicial inquiry into such matters by the High Court would require a roving factual inquiry which is better suited for the CERC.

The Court disposed of the writ appeal with the following direction: "With the aforesaid observations, the writ appeal stands disposed of. Consequently, C.M.P.Nos.29242, 29247 of 2024, 214 and 4088 of 2025 are closed. No costs."

It also stated: "In the event of filing any petition by the generating company, the CERC is requested to dispose of the same by affording opportunity to the parties, as expeditiously as possible."

Advocates Representing the Parties

For the Appellant: Mr. P. Chidambaram, Senior Counsel assisted by Mr. D.R. Arun Kumar, Standing Counsel for TANGEDCO

For the Respondents: Mr. Arvind P. Datar, Senior Counsel assisted by Mrs. Janane G, Ms. Krishna Laasya, and Mr. Abhinov Vaidhyanathan

Case Title: The Tamil Nadu Generation and Distribution Corporation Limited v. The Ministry of Power & Others

Neutral Citation: 2025: MHC:942

Case Number: W.A.No.3699 of 2024

Bench: Justice S.M. Subramaniam and Justice K. Rajasekar

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