THE TATA POWER COMPANY LIMITED vs MAHARASHTRA ELECTRICITY REGULATORY COMMISSION on 31 July 2026

JUDGEMENT

PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON

1. The present appeal No. 23 of 2017 has been filed by The Tata Power Company Limited (“Appellant”) challenging the Multi Year Tariff Order dated Counsel on record for the Appellant(s) : Mr. Basava Prabhu S. Patil, Sr. Adv. Mr. Amit Kapur for App. 1 Counsel on record for the Respondent(s) : Ms. Pratiti Rungta for Res. 1

08.08.2016 (“Impugned Order”) passed by the Maharashtra Electricity Regulatory Commission (hereinafter referred as “MERC/State Commission) in Case No. 32 of 2016 Description of Parties: -

2. The Appellant, Tata Power Company Limited, is a private power utility incorporated in 1919 under the Indian Companies Act, 1913. It is engaged in the business of generation, transmission, distribution, and trading of electricity in various parts of the Country. The Appellant was granted a license by Government of Maharashtra to supply energy to the public in its Mumbai License Area and to supply energy in bulk to Distribution Licensee. The entire generation capacity of the Generation Business of the Appellant is tied up on a long-terms basis with two Distribution Licensees of Mumbai, namely the distribution Business of Tata Power and Brihanmumbai Electric Supply and Transport Undertaking (“Best”), valid till 31.03.2018.

3. The Respondent No.1/MERC is the State Electricity Regulatory Commission, for the State of Maharashtra. Factual matrix of the Case:

4. Pursuant to the notification by Maharashtra Electricity Regulatory Commission of MYT Regulations, 2011, governing tariff determination for the period from 01.04.2011 to 31.03.2016 and MYT Regulations, 2015, applicable for the 3rd Control Period covering FY 2016-17 to FY 2019-2020, the Appellant filed Case No. 32 of 2016 for truing up of ARR for FY 2014-15, provisional truing up for FY 2015-16, and determination of tariff for the Third Control Period. On

08.08.2016, State Commission passed the Order in Case No. 32 of 2016, Appellant being aggrieved by certain findings in the Impugned Order has filed the present Appeal. DISCUSSION AND ANALYSIS

5. Heard Mr. B.P Patil, leaned Senior Counsel and Amit Kapur learned counsel appearing on behalf of Appellant and Ms. Pratiti Rungta, learned counsel appearing on behalf of State Commission and perused the Impugned Order dated 08.08.2016 and written submission filed by the parties and other documents. The Appellant has challenged following issues: - I. Non-Consideration of Additional PLF incentive for FY 2011-12 to FY 2013-14. II. Disallowance of Property Tax as Uncontrollable O&M Expenses. III. Disallowance of Income Tax for FY 2007-08 to FY 2013-14. ISSUE I- ADDITIONAL PLF INCENTIVE FOR FY 2011-12 TO FY 2013-14.

6. The issue pertains to denial of additional PLF incentive for the period FY 2011-12 to FY 2013-14, in Case No. 32 of 2016 for truing up of ARR for FY 2014- 15, provisional truing up for FY 2015-16, and determination of tariff for the Third Control Period, in which Impugned Order has been passed. The relevant paragraph of Impugned Order denying the additional PLF incentive on account of backing down of generating stations is extracted hereunder: “5.4.1.3 TPC-G has sought additional incentive considering the backing down of Generating Stations for FY 2011-12 to FY 2013-14. This claim for FY 2011-12 to FY 2013-14 cannot be considered since the True-up

for these past years has already been completed taking into account the submissions of TPC-G at that time.”

7. Learned Counsel for the Appellant contended that first proviso to Regulation 49.8 of the MERC (Multi Year Tariff) Regulations, 2011 mandates that actual generation "shall also consider the generation loss on account of any backing down instruction from the Maharashtra State Load Despatch Centre". Consequently, the Appellant's entitlement to PLF incentive on such deemed generation is a statutory right. On account of the backing-down instructions issued by MSLDC, the Appellant became entitled to an additional PLF incentive of Rs. 41.96 Crore for FY 2011-12 to FY 2013-14, which has been recorded and accepted in the Impugned Order and has also not been disputed by MERC in the present Appeal. The claim, however, could be quantified only upon issuance of the MSLDC certificate certifying availability and backing-down. Thus, the requisite data was not available at the time of the original truing-up of the said years, and the claim could only be crystallized upon receipt of the said certification.

8. Further, the sole objection raised by MERC that no such claim was made at the earlier stage and that the truing-up for the relevant years had already attained finality, cannot defeat the Appellant's statutory entitlement, particularly when the claim became capable of quantification only upon issuance of the MSLDC certificate. It is well settled that tariff determination is a continuous exercise as held by the Hon'ble Supreme Court in UPPCL v. NTPC, (2009) 6 SCC 235,. Further, tariff determination is inquisitorial in nature and not adversarial, and a utility cannot be deprived of its legitimate tariff entitlement merely because the supporting material was placed on record at a subsequent stage, as held by this Tribunal in its Judgment dated 04.05.2026 in Appeal No. 430 of 2019, Everest Power Pvt. Ltd. v. Punjab State Electricity Regulatory

Commission. Significantly, MERC itself has allowed an identical claim for PLF incentive on deemed generation in respect of the subsequent years, namely FY 2014-15 (where the admissible incentive was Nil) and FY 2015-16, while undertaking the respective truing-up orders. In any event, the claim has been raised during the truing-up exercise within the same MYT Control Period.

9. Per Contra, learned counsel for the respondent submits that contention of Appellant that the Respondent Commission failed to consider its claim for additional Plant Load Factor (PLF) Incentive on account of deemed generation for FY 2011-12 to FY 2013-14 is misconceived. The Appellant, while filing its MTR Petition on 01.01.2015 seeking revised truing-up for FY 2011-12 and truing-up for FY 2012-13 and FY 2013-14, did not raise any such claim, and State Commission passed the order on 26.06.2015, which was upheld by this Tribunal in Appeal No. 244 of 2015 by Judgment dated 03.06.2016. Further, Regulation 49.8 of the MERC (Multi Year Tariff) Regulations, 2011 mandates that PLF Incentive is to be computed and billed on a monthly basis based on the cumulative PLF, subject to year-end adjustment. It is an admitted position that the Appellant omitted to claim the incentive on account of deemed generation in its monthly billing from FY 2011- 12 onwards. Accordingly, the Commission, in the Impugned Order, rightly held that the Appellant's subsequent claim for additional PLF incentive for FY 2011-12 to FY 2013-14 could not be entertained, as the truing-up for the said years had already been concluded after duly considering the submissions made by the Appellant at the relevant time.

10. We have heard learned counsels for the parties on this issue. The short question is whether the Appellant's claim for additional PLF Incentive of Rs. 41.96 Crores for FY 2011-12 to FY 2013-14, admittedly not reflected in the monthly billing contemplated under Regulation 49.8, and not urged in the MTR Petition

dated 01.01.2015, can be entertained at the belated stage. In this context it is also of relevance to note the provisions of MYT Regulation 2011, hereunder: C. Incentive 49.8 Incentive shall be payable at a flat rate of 25.0 paise/kWh for actual energy generation in excess of ex-bus energy corresponding to target Plant Load Factor. Provided that the actual generation shall also consider the generation loss on account of any backing down instruction from the Maharashtra State Load Despatch Centre. The Incentive amount shall be computed and billed on monthly basis based on the cumulative Plant Load Factor till the respective month in a Year, subject to adjustment at the end of the year.

11. It is also of relevance to quote a brief background of various true up petitions filed by Appellant for the years under consideration for which additional PLF incentive is being sought, as enumerated below: i. The State Commission had issued the order on the MYT Petition for Tata – G dated 05.06.2013 (in Case no. 177 of 2011) in which true up exercise for FY 2011-12 was carried out and tariff for FY 2013-14 and FY 2015- 16 was determined in terms of the MYT Regulations 2011 dated 04.02.2011, encompassing the 2nd Control Period from FY 2011-12 to FY 2014-15. Admittedly, Appellant did not claim additional PLF incentive on account of generation backing down as per instructions of SLDC for True up for FY 2011-12, which is the first available occasion for claiming the same. ii. Thereafter, in the midterm review (MTR) for the MYT 2nd Control Period, State Commission passed the order on 26.06.2015 (in case no 6 of 2015), in which it had undertaken the trueing up of ARR of FY 2012-13 and FY 2013-14 and approved the net ARR of FY 2015-16 and

provisional Truing up of FY 2014-15 and impact of various judgements of this Tribunal was accorded for the past periods. It is again admitted that the Appellant neither claimed the additional PLF incentive on account of backing down for FY 2011-12 to FY 2013-14 in this petition nor reserved the liberty to claim it in future upon availability of certificate from MSLDC. iii. The petition (Case No 32 of 2016), in which Impugned Order has been passed, was admitted on 29.03.2016 and pertains to True up for FY 2014-15, provisional True up for FY 2015-16 under MYT Regulation 2011 and ARR for 3rd Control period (FY 2016-17 to FY 2019-20) under MYT Regulation 2015. It was only after filing of the said Petition that Appellant vide its letter dated 25.04.2016 made additional submissions claiming additional PLF incentive of about Rs 54 Crore for the period FY 2011-12 to FY 2015-16 due to backing down under MSLDC directions. Appellant reiterated the request for additional PLF incentive for the period FY 2011-12 to FY 2013-14 in its letter dated 05.05.2016 and requested the commission to consider the impact of additional PLF incentive along with carrying cost while working out the Gap/surplus and MSLDC certificate shall be submitted once received on affidavit as per requirement.

12. Another significant fact emerges from the record that the MSLDC Availability Certificate was issued on 18.05.2016. The Appellant's letter dated 25.04.2016, wherein the appellant for the very first time made representation for additional PLF incentive for the period of FY 2011-12 to 2015-16, is issued almost one month prior to MSLDC certificate came into existence and after more than three years of passing up of True up order for FY 2011-12 and after one year of passing of True up order of FY 2012-13 & FY 2013-14. Thus, it is clear, that the

Appellant itself has made quantification of additional PLF incentive, and submitted the same to State Commission without waiting for the MSLDC Certificate. It is also observed from the certificate issued by the MSLDC with regard to backing down of generation for three years, that certificate is issued based on the data submitted by TPCL, covering letter is extracted hereunder: “MAHARASHTRA STATE ELECTRICITY TRANSMISSION CO.LTD. MAHARASHTRA STATE LOAD DESPATCH CENTRE, KALWA No. CELDK/Tech-Sol-No 00851 Date: 18 MAY 2016 To, The Dy General Manager, Tata Power Company Ltd., Power System Control Centre, Trombay Thermal Power Station, Mahul Road, Chembur, Mumbai-400 001 Sub: Certification of Availability, PLF & Backing Down of TPCL Power Station for FY 2011-12, 2012-13, 2013-14, 2014-15 & 2015-16 Dear Sir. In context with the above subject, please find enclosed herewith the certificate of Availability, Plant Load Factor (PLF) & Backing Down data of TPCL Power Station for FY 2011-12, 2012-13, 2013-14, 2014-15 & 2015- 16). Certificate is issued based on data submitted by TPCL. Thanking You, Encl: Annexure A to D for above mentioned FY. Yours faithfully, Chief Engineer MSLDC, Airoli”

Though in the remarks of the annexures enclosed with the certificate, it is mentioned that “certificate is based on available data with SLDC and counterchecked with the data submitted by TPCL”.

13. Therefore, it is difficult to accept that Appellant was not aware about the quantum of energy it could not generate on account of backing down instructions to its generation project, and that such quantification was possible only upon receipt of the certificate. In these circumstances, we are unable to accept that the unavailability of MSLDC certificate, by itself, furnishes a satisfactory explanation for the Appellant's failure to raise or reserve this claim across the several stages. The Appellant cannot take shelter under a "blanket umbrella" that the certificate was not available at the relevant time, when its own conduct of raising additional submissions of PLF incentive at the much later stage but prior to the issuance of the certificate demonstrates that the absence of the certificate was not, in fact, an impediment to the Appellant to raise the claim or reserving the liberty to press it once the relevant certification is received. Further, as per 2nd proviso to Regulation 49.8, the Incentive amount to be computed and billed on monthly basis based on the cumulative Plant Load Factor till the respective month in a year, subject to adjustment at the end of the year. Our attention has not been drawn to any provision in the MYT Regulations 2011, that incentive claim in the monthly bills is to be accompanied by monthly backing down certificate from the MSLDC. Even if it is presumed that the final quantification of a claim is genuinely not possible, a party aware of its entitlement would ordinarily be expected to raise the claim/objection or reserving liberty to press it once the relevant certification is received. Further, Appellant has made no submissions with regard to the effort made by them in getting the requisite certificate from MSLDC in time.

14. The concept of “Truing up” has been dealt with in much detail in judgment State Load Despatch Centre v. Gujarat Electricity Regulatory Commission, 2015 SCC OnLine APTEL 50, , North Delhi Power Ltd. v. Delhi Electricity Regulatory Commission, 2007 SCC OnLine APTEL 16, and the same is affirmed by the Supreme Court in BSES Rajdhani Power Ltd. v. Delhi Electricity Regulatory Commission, (2023) 4 SCC 788. The truing-up exercise does not involve reconsidering the principles governing tariff determination however, it deals only with the adjustment of estimates made at the commencement of a tariff period against the actual figures subsequently available. A tariff determined on the basis of projections presented by petitions in the nature of Average Revenue Requirement (“ARR”) or Annual Performance Review (“APR”) is generally followed up by true-up orders based on audited accounts wherein suitable corrections are incorporated. The true-up ensures closure and certainty for consumers.

15. Appellant has placed reliance on the Hon’ble Supreme Court judgement in “UPPCL v. NTPC, (2009) 6 SCC 235, to contend that tariff determination is a continuous exercise and according the claim of additional PLF incentive should be allowed, moreover when the control period is still not over. This principle, cannot be read in isolation. In the very same judgment, the Hon'ble Supreme Court, while considering NTPC's claim to have arrears of employee cost arising from a retrospective pay revision, considered that the NTPC was aware at the material period. The Supreme Court observed that such jurisdiction must be invoked within a reasonable time and therefore the Central Commission “should not have been asked to revisit the tariff after five years and when everybody had arranged the affairs". The Court further held that a party "cannot... be permitted to re-agitate the said question after passing of many stages". NTPC's claim was accordingly disallowed, notwithstanding the continuous character of tariff-making,

precisely because NTPC possessed the relevant facts and had the opportunity to raise them, at the relevant time but did not.

16. A general rule is that a claim not urged at the time of truing-up is deemed to have been waived to undermine the finality of tariff determination and prejudice consumer interest. This principle of waiver and acquiescence is well recognized that a party who fails to assert its entitlement at the appropriate stage cannot ordinarily revive it later save where the Regulations expressly provide otherwise or where the omission is attributable to circumstances beyond its control and the Commission records reasons for condoning such delay. It is well settled that the law does not protect those who choose to sleep over their rights. Borrowing the words from UPPCL judgement (supra), “when everybody has arranged the affairs”, the continuous character cannot be perpetuated to open the fresh claims.

17. Therefore, while Regulation 49.8 confers a statutory entitlement to PLF incentive on deemed generation, such entitlement must be asserted contemporaneously in billing or truing-up proceedings. The MSLDC certificate is evidentiary in nature and does not create the right; the Appellant, being aware of the backing-down quantum, ought to have raised or reserved its claim at the relevant stages. To permit revival of claims after final truing-up would erode regulatory certainty, prejudice consumer interest, and contravene the principle that tariff finality cannot be unsettled save where regulations expressly so provide. Accordingly, the claim stands barred by waiver and acquiescence.

18. Further, Reliance placed by Appellant on the Judgement dated 04.05.2026 of this Tribunal in Appeal No. 430 of 2019 and Appeal No. 416 of 2022 is misplaced. In this judgement issue pertains to Appellant making its claim of additional Capitalisation, before the State Commission, on the basis of audited

accounts and admittedly no EPC contract or related documents were submitted and same was denied by the State Commission. Appellant thereafter at the Appellate Stage sought to substantiate its claim by producing EPC contract documents etc. In this context, this Tribunal clarified that in tariff determination proceedings, it is not bound by the rigid procedural constraints of the Code of Civil Procedure. The exercise is inquisitorial, statutory, and rooted in public interest. Accordingly, any document that aids in establishing the rightful tariff under Section 61 must be admitted, even if produced belatedly, provided its relevance is clear, its non-production is reasonably explainable, and no prejudice is caused to the opposite party. Accordingly, this Tribunal held that additional Capitalisation claims was not merely a self-serving assertion of the Appellant but is corroborated by audited financial statements, and observed that the Commission's disallowance without any finding that the actual expenditure was excessive, unjustified, or imprudent, is arbitrary. The ratio of this judgement is not applicable to the facts of present case as it is an admitted position that the Appellant did not claim such additional PLF incentive either in its monthly billing from FY 2011–12 onwards, or in its MYT Petition for true up of FY 2011-12 or in its MTR Petition dated 01.01.2015 for the True up of FY 2012-13 and FY 2013-

14. The truing-up for the relevant years was completed, and the orders attained finality, even being upheld by this Tribunal in Appeal No. 244 of 2015.

19. Accordingly, we find no infirmity in the Impugned Order insofar as it declines to entertain the Appellant's claim for additional PLF Incentive of Rs. 41.96 Crores for FY 2011-12 to FY 2013-14, the truing-up for those years having already been completed. The finding of the State Commission on this issue is upheld.

ISSUE II- DISALLOWANCE OF PROPERTY TAX AS UNCONTROLLABLE O&M EXPENSES.

20. Appellant contention lies on the gain/losses sharing computation aspect, where an uncontrollable item was treated as controllable item. Appellant submits that while computing the sharing of efficiency gains/losses on O&M expenses, MERC failed to exclude the uncontrollable increase ( on account of taxes) from the actual O&M against Normative O&M, which resulted in deprivation of Rs 8.57 crore of O&M entitlement, which is contrary to this tribunal decision in Appeal No. 173 of 2009, wherein the uncontrollable character of such statutory expenses is recognised and the same is also reflected in MERC's own order dated 15.02.2012 in Case No. 105. However, MERC's position for tariff determination for the part of the control period instead is that, since normative O&M expenses under Regulation 45 are derived and escalated on a composite basis without segregation into employee, R&M and A&G components, and since the escalation factor of 5.72% allowed on normative O&M is treated as subsuming variation in all types of taxation.

21. Appellant submits that Regulation 12.1(d) specifically and unconditionally classifies "Taxes and Duties" as an uncontrollable factor. Regulation 12.2(g), by contrast, is a general and illustrative provision dealing with variation in O&M expenditure as a class. It is a well settled principle of interpretation that a specific provision prevails over general provisions. A general escalation of 5.72% for controllable O&M expenses by its very nature pertains to inflationary and general expenses, and not change in taxes.

22. Per Contra, State Commission submits that Appellant had claimed Administration and General (A&G) expenses (which includes property tax) of Rs.

107.34 which includes difference in property tax prior to amendment and the revised property tax i.e., Rs. 12.85 crore, and same was approved by the Commission. The Property Tax increase was correctly left within the composite actual-versus-Normative O&M comparison for gain/loss sharing under Regulation 14.2, under which only one-third of any resultant loss is passed through and the remainder is absorbed by the generating company. State Commission placed reliance on this Tribunal's judgment dated 05.04.2019 in Appeal No. 245 of 2015, wherein it is held that increase in any type of taxation including property tax could be subsumed in the said escalation and accordingly did not allow the variation in property tax separately, though the said judgment is under challenge in Civil Appeal No. 5732 of 2019 before the Hon'ble Supreme Court.

23. We heard the learned counsel of both Appellant and State Commission. The issue pertains, whether increase in property tax should be subsumed in actual O&M charges for working out the loss and gain when compared with Normative O&M Charges and treatment of such loss and gain accorded in terms of Regulation 14.2 of MYT Regulations, 2011. Regulation 12 of MYT Regulation 2011 specifies the Controllable and Uncontrollable factors, in which Regulation 12.1 enumerates "uncontrollable factors", including at clause (d); "Taxes and Duties". Regulation 12.2, gives an illustrative ("include, but are not limited to") list of controllable factors, including at clause (g) "variation in operation & maintenance expenses". It is the contention of Appellant that since change in taxes falls under the uncontrollable parameters, and therefore uncontrollable increase (on account of taxes) should have been deducted from the actual O&M against Normative O&M, while working out loss and gain.

24. There is no dispute that O&M charges are categorized as “Controllable factors” and are calculated in terms of Regulation 45, which provides for setting up of the norms based on average of past actual O&M charges and an escalation factor of 5.72 % is provided. The relevant Regulation is extracted hereunder : “ 45.1 Existing Generating Stations

a) The Operation and Maintenance expenses including insurance shall be derived on the basis of the average of the actual Operation and Maintenance expenses for the three (3) years ending March 31, 2010, based on the audited financial statements, excluding abnormal Operation and Maintenance expenses, if any, subject to prudence check by the Commission.

b) The average of such operation and maintenance expenses shall be considered as operation and maintenance expenses for the financial year ended March 31, 2009 and shall be escalated based on the escalation factor as approved by the Commission for the respective years to arrive at operation and maintenance expenses for the base year commencing April 1, 2011.

c) The O&M expenses for each subsequent year shall be determined by escalating the base expenses determined above for FY 2010-11, at the escalation factor 5.72% to arrive at permissible O&M expenses for each year of the Control Period. Provided that in case, an existing Generating Station has been in operation for less than three (3) years as at on the date of effectiveness of these Regulations, the O&M Expenses shall be as specified at Regulation 46 for New Generating Stations”

25. Controllable factor means that once these O&M charges are worked out, the generating company need to manage its affairs within the amount provided. However, admittedly, the change in taxes is provided as uncontrollable parameters, beyond the control of generating Company. As per Regulation 13, mechanism of pass through of gain or losses on account of uncontrollable factor has been provided, relevant regulation is extracted hereunder:

“13 Mechanism for pass through of gains or losses on account of uncontrollable factors 13.1 The approved aggregate gain or loss to the Generating Company (except the adjustment provided to the Generating Company as per Regulation 49.6 of these Regulations) or Transmission Licensee or Distribution Licensee on account of uncontrollable factors shall be passed through under Z-factor Charge, as an adjustment in the tariff of the Generating Company or Transmission Licensee or Distribution Licensee on a half yearly basis or a yearly basis, as specified in these Regulations and as may be determined in the Order of the Commission passed under these Regulations. 13.2 The Generating Company or Transmission Licensee or Distribution Licensee shall submit details in the stipulated format to the Commission on a half yearly basis for obtaining the Commission's approval for the Z-factor Charge and, for this purpose, shall submit such details of the variation between expenses incurred and the figures approved by the Commission, along with the detailed computations and supporting documents as may be required for verification by the Commission. However, for Generating Company, the Z-factor Charge shall exclude the variations in fuel expenses as the Generating Company is allowed to recover fuel expense on monthly basis through Fuel Surcharge Adjustment as specified in Regulation 49.6. Provided that subsequent to the notification of these Regulations, the Generating Company or Transmission Licensee or Distribution Licensee, shall obtain the approval of the Commission prior to levying the Z-factor Charge:”

26. While, the Regulation 14 provides for sharing of gain and loss on account of controllable factors, relevant Regulation reproduced hereunder: “14. Mechanism for sharing of gains or losses on account of controllable factors 14.1 The approved aggregate gain to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner:

(a) One-third of the amount of such gain shall be passed on as a rebate in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; (b) The balance amount, which will amount to two-third of such gain, may be utilized at the discretion of the Generating Company or Transmission Licensee or Distribution Licensee. “14.2 The approved aggregate loss to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner:

(a) One-third of the amount of such loss may be passed on as an additional charge in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; and (b) The balance amount of loss shall be absorbed by the Generating Company or Transmission Licensee or Distribution Licensee.”

27. Harmonious reading of various provisions of Regulations, in our view, would mean that though the O&M charges are controllable but if there are one- time expenses or expenses beyond the control of generating company/licensee, they are payable extra in terms of above provision. While the gain and loss on account of uncontrolled parameters is passed on the tariff as such, being beyond the control of generating company, however for controllable parameters, only 1/3rd loss can be passed on to the consumer in tariff and balance loss of 2/3rd is to be absorbed by the generating company/licensee. We, are unable to agree with the contentions of State Commission that once O&M charges are defined as Controllable factors, even if changes in taxes and duties are classified as uncontrollable factors, any change on account of these uncontrollable factor would get subsumed and escalation factor of 5.72 % provided under controllable factor would take care of variation; further the change in controllable parameters on account of these uncontrollable factors would also be used for the treatment of loss and gain in terms of Regulation 14.

28. The escalation factor in normative O&M parameters is a considered regulatory device, grounded in economic necessity and doctrinal fairness. Normative O&M values, once fixed, are intended to serve as benchmarks of prudence and efficiency across the control period. Yet, it is fact that the cost environment is not static; wages, materials, and service inputs are subject to inflationary pressures and market variability. To ignore such dynamics would render the norms unrealistic, thereby eroding the financial viability of utilities and distorting the balance of interests between licensees and consumers. Accordingly, escalation is provided as a calibrated adjustment, typically linked to some indices such as CPI or WPI. This ensures that normative parameters remain contemporaneous with prevailing economic conditions, while still incentivizing efficiency by disallowing arbitrary or excessive claims. The escalation factor thus preserves the integrity of the regulatory framework.

29. Accepting the contention of State Commission that all uncontrolled parameters are subsumed in normative controllable parameters would render Regulation12.1 and Regulation 13 otiose. In law, it is not permitted to interpret one provision of a regulation in a manner that completely nullifies or ignores another provision, unless reconciliation is impossible. Courts apply the principle of harmonious construction that every clause must be given meaning, and no part of the regulation should be rendered otiose or nugatory.

30. Accordingly, the Appellant is entitled to the recovery of change in property tax due to subsequent notification of Municipal Corporation, classified as uncontrollable parameters, only to the extent which was not part of consideration while working out the Normative O&M parameter for the current period. Accordingly, the findings in the Impugned Order are set aside and matter remanded to State Commission to accord treatment of Change in Property tax as

uncontrolled parameters, and loss and gain worked out as per Regulation 13. Loss and gain for the balance O&M expenditure to be worked out in terms of Regulation 14. ISSUE III- DISALLOWANCE OF INCOME TAX FOR FY 2007-08 TO FY 2013-

14.

31. Appellants submits that the issue pertains to recomputation of income tax for past period from FY 2007-08 to FY 2013-14 in accordance with the judgement of this tribunal dated 03.06.2016 in Appeal No. 244 of 2015, whereby it upheld the MYT Order of the State Commission that income tax is payable on the actual income computed on the regulated Profit Before Tax (PBT) considering revenue on the billed/cash basis and not on the accrual basis. Appellant submits that in the present appeal it only seeks implementation of the Judgment dated 03.06.2016 for the period FY 2007-08 to FY 2013-14, to the extent the same has not been given effect to. The same is without prejudice to Appellants’ pending C.A No 1356 of 2017 against the judgement dated 03.06.2016.

32. Appellant further submits that MERC has granted permission to the Appellant to recover, in subsequent years, the revenue gaps pertaining to earlier years, namely, the gap of FY 2007-08 recovered in FY 2009-10, the gap of FY 2008-09 recovered in FY 2010-11, and the gaps of FY 2009-10 and FY 2010-11, along with the impact of the judgments of this Tribunal, recovered in FY 2013-14. However, while computing Income Tax on the billed/cash basis, MERC failed to include such deferred recoveries as part of the Appellant's income for the relevant years, which was also placed before MERC during the Impugned proceedings but was completely ignored. Consequently, the Appellant has been denied Income Tax pass-through both on the accrual basis and on the billed/cash basis in respect of the deferred recoveries, resulting in an under-recovery of Rs. 215.75

Crores (excluding applicable carrying cost). The relief sought neither amounts to an alteration of the settled tariff methodology nor constitutes a belated claim for additional Income Tax, but is merely the grant of consequential tax pass-through on revenue actually recovered, in accordance with the settled legal position and placed reliance upon the Judgment dated 18.05.2026 passed by this Tribunal in TPDDL v. DERC (Appeal No. 213 of 2018).

33. Appellant further submits that in Case No. 6 of 2015, it had sought pass- through of Income Tax on an accrual basis for FY 2007-08 to FY 2013-14, which was rejected by MERC in favour of computation on a billed basis. However, while granting such pass-through, MERC failed to consider the deferred recoveries as part of the Appellant's income in the respective years in which such recoveries were actually billed. Since the challenge in Appeal No. 244 of 2015 was confined to the principle of computation on a billed basis as opposed to an accrual basis, consequently, the limited issue regarding exclusion of deferred recoveries while computing Income Tax on the billed basis neither arose nor fell for consideration before this Tribunal in the said Appeal. Therefore, once this Tribunal upheld the methodology of computation of Income Tax on a billed basis as prescribed by MERC, the Appellant was fully justified in approaching MERC for grant of the consequential pass-through of the differential Income Tax amount inadvertently omitted while implementing the said methodology.

34. Per contra, it has been submitted by the State Commission that in its Mid- Term Review order dated 26.06.2015, State Commission computed the income tax liability on the PBT method by considering the billed revenue and allowed Rs. 204.99 Crore income tax for FY 2007-08 to FY 2013-14, in implementation of the specific directions of this Tribunal in Appeal No. 105 of 2012. Aggrieved by the said MYT order dated 26.06.2015, Appellant preferred Appeal no.244 of 2015

in which this tribunal vide its judgement dated 03.06.2016 dismissed the appeal and upheld the Commission’s methodology for computation of income tax. The Appellant’s review petition was also dismissed by this Tribunal vide its judgement dated 17.11.2016. This Tribunal, in its judgement dated 03.06.2016 neither granted relief sought by the Appellant nor issued any specific directions for recomputation of income tax for past period and did not interfere with the Commission’s Mid Term Review Order dated 26.06.2015 in Case no. 06 of 2015. Permitting the Appellant's claim for re-computation of Income Tax for the past years would amount to reopening concluded truing-up proceedings, which is impermissible under the prevailing regulatory framework, particularly in the absence of any specific direction from this Tribunal.

35. Appellant submits that the reliance placed by MERC on the proviso to Regulation 34.1 of the MYT Regulations is equally misplaced, as the Appellant's claim pertains to Income Tax on deferred revenue gaps arising from the sale of power, which MERC itself had permitted to be recovered through its tariff orders and which are unrelated to efficiency gains or losses. Equally, the plea of finality is untenable, since MERC has itself revisited and readjusted concluded truing-up exercises, including in Case No. 179 of 2011 by re-working the past Gap/Surplus for FY 2004-05 to FY 2007-08, and Case No. 6 of 2015 by re-adjusting the past Income Tax benefit for FY 2007-08 to FY 2010-11 during the truing-up of FY 2014- 15 , and in any event, it is well settled that tariff determination is a continuous process, as held by the Hon'ble Supreme Court in UPPCL v. NTPC, (2009) 6 SCC 235.

36. It is apposite to reproduce relevant Paragraph of Impugned Order, as under: “3.1.9 The submission of TPC-G pertains to Income Tax calculation for the period FY 2007-08 to FY 2013-14. The MTR

Order had reassessed the Income Tax for the period FY 2007- 08 to FY 2010-11 on PBT method as per the ATE Judgment in Appeal No.105 of 2012. Further, the Commission undertook the revised Truing-up of FY 2011-12 and Truing-up of FY 2012- 13 and FY 2013-14 and determined the Income Tax based on PBT method as per the data and information submitted by TPC-G .3.1.10 TPC-G had filed an Appeal No.244 of 2015 in ATE against the MTR Order challenging the methodology of computation of Income Tax calculation. In its judgment dated 3 June, 2016, the ATE has dismissed all the submissions of TPC-G on the issues relating to Income Tax calculation. The ATE has upheld the Commission’s Order, and there is no direction from ATE for revised calculation of Income Tax for the past periods which have attained finality. …..”

37. Further, considering the submissions made by the parties, it is of relevance to note the considerations in the MTR order dated 26.06.2015 against which the Appeal No.244 of 2015 was instituted before this tribunal and judgement dated 03.06.2016 passed. MYT Order dated 26.06.2015 (Case No.06 of 2015)

38. In this order, the Mid Term Review for the MYT 2nd control period FY 2011- 12 to FY 2015-16 has been considered. In addition, the impact of this Tribunal’s following judgments on previous years truing up has also been considered:- Judgement dated 31 August, 2012 in Appeal No.18 of 2011 Judgement dated 28 November, 2013 in Appeal No.105 of 2012 Judgement dated 28 November, 2013 in Appeal No.182 of 2012 Judgement dated 27 October, 2014 in Appeal No.212 of 2013

1) Impact of APTEL’s Judgment dated 31.08.2012 in Appeal No.18 of 2011 The matter pertained to Truing up of FY 2008-09, APR for FY 2009-10 and ARR for FY 2010-11. In this Commission allowed Non DPR Capitalisation for

FY 2008-09 to FY 2010-2011 in terms of this judgement and considered impact of such disallowed capitalization on depreciation, interest on loan and ROE along with carrying Cost as Rs 38.90 Crore against Rs 44.74 claimed by TPC.

2) Impact of APTEL’s Judgment dated 20.11.2013 in Appeal No.105 of

In this judgment, income tax for FY 2007-08 to FY 2010-11 has been considered. Initially TPC-G has not claimed the Income tax for these years on PBT basis, however, subsequent to further queries from commission, it submitted Income tax on the basis of PBT for the FY 2007-08 to FY 2010-11 as Rs 72.45 Crore, Rs 88.98 Crore, Rs 125.84 Crore and Rs 79.71 Crore respectively. Subsequently Commission reassessed the Income tax on the period from FY 2007-08 to FY 2010-11 on standalone basis as stipulated in the judgement of this Tribunal in Appeal no 173 of 2009 and computed income tax liability considering Regulated PBT on billed revenue and following was approved, Extract from MYT Order dated 26.06.2015 is reproduced hereunder: “ III. 2.1.12 The total impact on Income tax for the period FY 2006-07 to Fy 2010-11 as approved by the commission is Rs 80.44 Crore as against Rs 302.96 Crore claimed by TPC-G” …. Considering all other claims in terms of this Tribunal’s Judgement, following recovery was approved as part of MYT Order. 3.2.9.8 Considering the ATE Judgment in Appeal No.105 of 212, the Commission approves its net impact, along with carrying cost, as Rs.139.65 Crore, as against Rs.640.19 Crore claimed by TPC-G.”

3) Impact of APTEL’s Judgment dated 28.11.2013 in Appeal No.182 of 2012 and dated 27.10.2014 in Appeal No 212 of 2013 In view of this Tribunal Judgement, Commission undertook the revised truing up of FY 2011-12 in accordance with MYT Regulations and computed the

income tax liability on the regulated Profit Before Tax (PBT) basis of income less permissible expenses and other provisions of income tax and Commission approved as following: - “3.3.2.53 The Commission approves the Income Tax at Rs. 31.41 Crore for FY 2011-12 for Unit 4 to 7 and Hydro Stations and, accordingly, the impact of the ATE Judgment on account of Income Tax has been computed as a negative amount of Rs. 72.76 Crore considering the difference of Income Tax of Rs. 104.17 Cr. approved in MYT Order and Rs. 31.41 Cr. approved in this Order”.3.3.3.32 The Commission approves the income tax for unit 8 as Rs 22.57 Crore for FY 2011-12 and accordingly determines the impact of ATE judgement of Rs 2.32Crore”

39. Besides effecting the impact of APTEL’s Judgement, in the MYT Order, Truing up of FY 2012-13 was carried out in which Income Tax for FY 2012-13 was approved on Regulated PBT based on income less permissible expenses considering only revenue recovered from sale of power. Likewise income tax computation was done under Truing up of FY 2013-14 and revised estimates for FY 2014-15 to FY 2015-16. Tribunal Judgement dated 03.06.2016, in Appeal 244 of 2015

40. The MYT order dated 26.06.2015 was assailed before this Tribunal in Appeal 244 of 2015, and Tribunal passed the judgement on 03.06.2016. In this Appeal, besides other claims the Appellant has challenged the disallowance of Income Tax in the MYT order on account of i) exclusion of efficiency gain and incentive in total income ii) income considered on billed revenue instead of accrual basis, iii) not considering entire income while calculating PBT including the revenue gap after truing up. Appellant had emphasized on computation of Income tax on accrual basis as generation business revenue considered for

income tax consists of only fixed and variable charges without the gap surplus of previous year. Appellant had prayed that “State Commission be directed to recalculate the PBT after considering entire income of the Appellant including the income which is yet to be recovered as revenue gap as installments in the same FY.

41. The State Commission in its submissions, has confirmed that revenue from sales only has been considered and income booked as future tariff adjustments has not been considered for truing purpose and following submissions made on behalf of State Commission are noted in Paragraph 16.3 of referred judgement dated 03.06.2016, “16.3……… Accordingly, only revenue from sale of power is considered. Since income booked as future tariff adjustment has not been considered for truing up purposes. The State Commission has not considered income as payable on such income which is yet to be approved by the State Commission and yet to be billed or recovered. Income tax based on regulated PBT is payable on the actual income. Regarding the Appellant’s claim on disallowance of income tax due to non-consideration of revenue gap, the State Commission's submissions is that the revenue gap which is approved after truing up a particular year gets recovered in subsequent year. Accordingly, the same is reflected in the revenue in subsequent year and cannot be considered for the year under consideration of truing up.” After deliberating the issue, this Tribunal held as under: “17.8) After going through the case law, cited by the appellant, the said case laws are not applicable to the facts of the matter in hand. They are on different aspects with which we are not concerned in these appeals. We are clearly of the view that income tax based on regulated PBT is payable on the actual income in such situation. In view of the above discussion, on this issue we approve the findings and view expressed by the State Commission in the Impugned Order. This issue is also decided against the appellant in each of the appeals.”

42. We have carefully considered the rival submissions, content of MYT Order, Tribunal Judgement dated 03.06.2016 and the statutory framework. The Impugned Order proceeds on the premise that, in the absence of a specific direction in the judgment dated 03.06.2016, the Appellant’s claim for pass-through of income tax on past period recoveries cannot be entertained. It is an admitted position that challenge in Appeal No. 244 of 2015 was confined to the principle of computation on a billed basis as opposed to an accrual basis, and Appellant did not raise the non-consideration of some revenue in the past period for the purpose of computation of income tax even in the methodology adopted by State Commission in the MYT Order. It appears that the principal issue in Appeal No 244 of 2015 pertained to adoption of methodology for income tax computation; whether the revenue to be considered on billed basis or accrual basis and not the actual computation.

43. It is important to note that this Tribunal, by judgment dated 03.06.2016, expressly upheld the methodology adopted by the State Commission in the MYT Order, namely computation of income tax on actual billed revenues as against accruals. The Tribunal categorically held that “income tax based on regulated PBT is payable on the actual income,” thereby affirming the principle that the tax liability must attach to the real income stream of the regulated business. Once such methodology has been judicially sanctioned, absence of an express direction cannot be construed as denial of the logical consequence of the affirmed principle. The Commission is required to apply the methodology consistently, subject to prudence check.

44. As noted above, State Commission, in its submissions before this Tribunal in Appeal No. 244 of 2015, acknowledged that revenue gaps approved after truing up are recovered in subsequent years and are then reflected in the revenue of

those years. This amounts to an admission that the computation of income tax ultimately pertains to the entire revenue actually earned, inclusive of deferred recoveries. To deny pass-through of income tax on such recoveries would be to disregard the State Commission’s own submissions and to create an artificial distinction between current and deferred revenues, which has no basis in law or regulation.

45. Regulation 34 of the MERC (MYT) Regulations, 2011 explicitly mandates that income tax payable on the permissible return of the regulated business shall be provisionally approved and subsequently trued up, subject to prudence check; Regulation 34 is reproduced hereunder: “34 Tax on Income 34.1 The Commission, in its MYT Order, shall provisionally approve Income Tax payable for each year of the Control Period, if any, based on the actual income tax paid on permissible return as allowed by the Commission relating to the electricity business regulated by the Commission, as per latest Audited Accounts available for the applicant, subject to prudence check: Provided that no Income Tax shall be considered on the amount of efficiency gains and incentive earned by the Generating Companies, Transmission Licensees and Distribution Licensees. Provided further that the Generating Company, Transmission Licensee and Distribution Licensee shall bill the Income Tax under a separate head called "Income Tax Reimbursement" in their respective bills. 34.2 Variation between Income Tax actually paid and approved, if any, on the income stream of the regulated business of Generating Companies, Transmission Licensees and Distribution Licensees shall be reimbursed to/recovered from the Generating Companies, Transmission Licensees and Distribution Licensees, based on the documentary evidence submitted at the time of Mid-term Performance Review and MYT Order of third Control Period, subject to prudence check. 34.3 Under-recovery or over-recovery of any amount from the beneficiaries or the consumers on account of such income tax having been passed on to

them shall be on the basis of income-tax assessment under the Income-Tax Act, 1961, as certified by the statutory auditors. The Generating Company, or the Transmission Licensee or Distribution Licensee, as the case may be, may include this variation in its Mid-term Performance Review Petition and MYT Petition of third Control Period: Provided that tax on any income stream from other than the business regulated by the Commission shall not constitute a pass-through component in tariff and tax on such other income shall be borne by the Generating Company or Transmission Licensee or the Distribution Licensee, as the case may be.”

46. We are of the considered view that once the methodology adopted by the State Commission has been upheld by this Tribunal, the same attains finality, however the affirmation of methodology does not preclude the Commission from rectifying inadvertent computational mistakes committed in applying that methodology or omission in application of methodology. The doctrine of rectification permits correction of errors apparent on the face of the record, including clerical or arithmetical omissions, so long as such correction does not amount to a review of the substantive methodology. Therefore, while the party is estopped from re-agitating the validity of the methodology, which is not the case in present Appeal, it is entitled to require that the Commission compute the amounts strictly in accordance with the methodology already upheld, and to seek rectification of computational mistakes in subsequent proceedings. The Commission, in discharge of its statutory duty, must ensure that the figures are correctly applied as per approved methodology so that the regulatory outcome reflects accuracy and fairness. Further, while the principal revenue gap is allowed to be recovered in subsequent years, if the corresponding tax liability is disallowed though inadvertently, it will distort the true financial position of the regulated entity and undermining the principle of revenue neutrality and as such the income tax is a statutory obligation of the Appellant. Such denial is contrary

to the settled doctrine that tariff must reflect the legitimate costs of the regulated business, including statutory tax liabilities, subject to prudence check.

47. In view of above deliberations, we set aside the finding in the Impugned Order that Income tax for the past period cannot be worked out as there is no specific direction in the APTEL Judgement dated 03.06.2016. Issue is remanded to the State Commission with a direction to undertake prudence check of the Income tax claimed by the Appellant for the past period as per the methodology in the MTR Order and affirmed by this Tribunal in the judgement dated 03.06.2016, and to allow such pass-through to the extent found prudent, in accordance with law.

ORDER

In view of above deliberations, our view of the issues in the present Appeal are decided as under: I. Non-Consideration of Additional PLF incentive for FY 2011-12 to FY 2013- 14; Impugned Order is upheld. II. Disallowance of Property Tax as Uncontrollable O&M Expenses; The findings in the Impugned Order are set aside and matter remanded to State Commission to accord treatment of Change in Property tax as uncontrolled parameters, and loss and gain worked out as per Regulation 13. Loss and gain for the balance O&M expenditure to be worked out in terms of Regulation 14. III. Disallowance of Income Tax for FY 2007-08 to FY 2013-14; Impugned Order set aside and Issue is remanded to the State Commission to undertake prudence check of the Income tax claimed by the Appellant for

the past period as per the methodology in the MTR Order and affirmed by this Tribunal in the judgement dated 03.06.2016, and to allow such pass-through to the extent found prudent, in accordance with law Needless to state that State Commission shall endure to pass the order on the issues being remanded expeditiously, preferably within three months from the date of receipt of this Judgement. The Captioned Appeal and pending IAs, if any, are disposed of in these terms. PRONOUNCED IN THE OPEN COURT ON THIS 31st DAY OF JULY, 2026. (Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson REPORTABLE / NON-REPORTABLE Pr/dk/ak