Indian Railways remains liable to pay Open Access Surcharges, Rules Supreme Court

The dispute originated when Indian Railways sought to procure electricity through inter-State open access for powering its traction substations and railway operations. Indian Railways contended that it was a Deemed Distribution Licensee (DDL) under the third proviso to Section 14 of the Electricity Act, 2003 and therefore was not liable to pay Cross-Subsidy Surcharge and Additional Surcharge while availing open access. The Central Electricity Regulatory Commission (CERC) had previously accepted this position and recognised Indian Railways as a deemed distribution licensee.

Subsequently, several State Electricity Regulatory Commissions (SERCs) and distribution licensees challenged this position. The Appellate Tribunal for Electricity (APTEL), by its judgment dated February 12, 2024, set aside the CERC’s decision and held that Indian Railways was not entitled to claim the status of a deemed distribution licensee. Aggrieved by the APTEL judgment, Indian Railways preferred appeals before the Supreme Court.

Before the Supreme Court, Indian Railways argued that the powers conferred upon it under Section 11 of the Railways Act, 1989, including powers to establish and maintain electricity infrastructure and distribution installations, entitled it to be treated as a deemed distribution licensee under the Electricity Act. It further argued that, being an entity of the Central Government, it fell within the scope of the “appropriate government” contemplated under Section 14 of the Electricity Act.

Rejecting these submissions, the Supreme Court observed that the function of a distribution licensee involves not merely owning or operating electrical infrastructure but also supplying electricity to consumers through a distribution system. The Court noted that Indian Railways procures electricity exclusively for its own operations, including traction requirements, railway stations and related facilities, and does not distribute electricity to third-party consumers. Accordingly, the Court held that Indian Railways functions as a consumer under the Electricity Act and cannot claim treatment different from that accorded to other consumers availing open access.

The Supreme Court further held that Indian Railways could not seek preferential treatment by claiming exemption from statutory surcharges merely on the basis of its claimed status as a deemed distribution licensee. The Court concluded that, as a consumer availing open access for its own use, Indian Railways remains liable to pay both CSS and AS under Section 42 of the Electricity Act, 2003. The ruling provides important clarity regarding the interpretation of “distribution” under the Electricity Act and is likely to influence future disputes concerning open access, surcharge liability and claims to deemed distribution licensee status. 

Conclusion

The decision provides important regulatory certainty for distribution licensees and open-access consumers by clarifying that ownership or operation of electrical infrastructure, without supply of electricity to third-party consumers, does not by itself confer distribution licensee treatment under the Electricity Act, 2003.