Holding

Fixing the fuel surcharge rate under clause 16.10.3 is a legislative‑type exercise that must be performed strictly according to the prescribed formula, without a requirement for a hearing, and the Board erred in including TVNL and the deemed supply to TISCO.

Summary

The Bihar State Electricity Board (BSEB) levied a fuel surcharge on high‑tension consumers under its 1993 tariff notification, using a formula in clause 16.10.3. Consumers challenged the calculation, arguing that the Board improperly included purchases from Tenughat Vidyut Nigam Ltd (TVNL) and treated the DVC‑to‑TISCO supply as a separate category, thereby violating the formula and the principle of natural justice. The Supreme Court held that fixing the fuel surcharge is a legislative‑type exercise governed by the prescribed formula, which is a purely arithmetical computation and does not require a hearing. The Court affirmed the High Court’s view that TVNL, which did not exist in the base year, cannot be treated as a component of the formula and that the deemed supply to TISCO must be accounted for within the existing components. Consequently, the Board’s appeal was dismissed and the High Court’s orders were upheld, with a direction to adjust the Rs 100 crore payment by coal companies in the surcharge calculation.

Issues considered

The nature of the function of fixing fuel surcharge rates – legislative or non‑legislative – and the applicability of natural‑justice principles.
Whether the inclusion of TVNL purchases and the deemed supply to TISCO conform to the tariff formula in clause 16.10.3.
Whether the Board must recalculate fuel surcharge rates for 1996‑97 onwards after deleting TVNL and the deemed supply components.
Whether the Rs 100 crore payment by coal companies should be factored into the surcharge calculation for 1998‑99.

Legislation cited

Electricity (Supply) Act, 1948s. 49, s. 59

Subjects

fuel surchargetariff fixationElectricity (Supply) Actnatural justiceArticle 14subordinate legislationprice fixationhigh tension consumersformulaic calculation

Judgment

[2009] 6 S.C.R. 292
""!-'
BIHAR STATE ELECTRICITY BOARD
A
v.
MIS PULAK ENTERPRISES & ORS.
(Civil Appeal Nos.7220-7239 of 2000)

APRIL 15, 2009
B
[DR. ARIJIT PASAYAT AND TARUN CHATTERJEE, JJ.]
~ -
Electricity (Supply) Act, 1948 :
s.49 - Fixing of tariff - Bihar State Electricily Board
c Notification dated 21.6.1993- Clauses 16.10.3, 16.10.3.1 and
17 - Amendment to - Levy of 'Fuel surcharge' - Formula -
Held : Though fuel surcharge is a part of tariff, fixin} rate of
fuel surcharge under Clause 16.10 of Tariff Notifil:ation is
different from fixing tariff u/s 49 of the Act - Where fidng rate
D of fuel surcharge is just an arithmetical exercise, giving
opportunity of hearing would not serve any pu"pose -
Electricity Board is entitled to levy fuel surcharge on the
consumers receiving high Tension supply leaving out the
consumers coming in other categories - Validit:r of the
formula has already been upheld - Fuel surcharge h=is to be
E ...
calculated strictly within the framework of the formula -
Administrative Law - Subordinate Legislation - Principle of
natural justice - Opportunity of hearing - Constitution of India,
1950 - Article 14.

F The instant appeals were filed against the juctgment
of the High Court in writ petitions filed by the consumers
challenging the levy and collection of fuel surcharge by
the Bihar State Electricity Board.
Dismissing the appeals of the Board and a lowing
G those of the consumers, the Court >.-

HELD: 1.1. The significance of the question as to
whether fixing the rate of fuel surcharge is a legislative
function or a non-legislative function is that if the function
H 292
BIHAR STATE ELECTRICITY BOARD v. PULAK 293
ENTERPRISES & ORS .
•
-t
is held to be legislative, in the absence of any provision A
~ in that regard the principles of natural justice would not
be applicable and the scope of judicial review would also
be limited to the plea of discrimination i.e. violation of
Article 14 of the Constitution of India, 1950. [Para 21J [311-
C, DJ B
Prag Ice and Oil Mills v. Union of India AIR 1978 SC
-i 1296; Rohtas Industries v. Bihar State Electricity Board
AIR 1984 SC 657 and Kera/a State Electricity Board v. Mis
S.N. Govind Prabhu & Brothers AIR 1986 Supreme Court
1999, relied on. c
Saraswati Industrial Syndicate Limited v. Union of India
AIR 1975 SC 460; Union of India v. Cynamide India Ltd. AIR
1987 SC 1802 and Shri Sitaram Sugar Company L_td. v.
Union of India 1990 (3) SCC 223, referred to.
D
~
1.2. In a sense, fixing rate of fuel surcharge under
clause 16.10 of the Tariff notification is different from
fixing the tariff u/s 49 of the Electricity (Supply) Act. Fuel
surcharge is undoubtedly a part of tariff. But fixing rates
of consumption charges or the guaranteed charges or E
the fixed charges or the delayed payment surcharge etc.
and fixing rates of fuel surcharge do not stand on par.
Though rates of consumption charges etc. are based on
.... objective materials, there is enough scope for flexibility .
in fixing the rates. It also involves policy to fix different F
rates for different categories of consumers. Such is not
the position with the fuel surcharge. [Para 26J [313-B, CJ
1.3. Clause 16.10.1 specifies the categories coming
in the net of the levy and clause 16.10.3 provides the
formula. The formula envisages addition of units G
~
generated or purchased and increased average cost of
fuel and average unit rate of purchase rates and division
of the total by the quotient is the average fuel surcharge
per unit (expressed in terms of paise) described by
denominator 51 in the formula. The whole exercise, it H
294 SUPREME COURT REPORTS [20m1] 6 S.C.R.
•
~
A would appear, involves arithmetical accounting. There is -
no scope for exercise of any discretion or flexibility. If
fixing rate of fuel surcharge is just an arithmetical
exercise, giving opportunity of hearing would hardly
serve any useful purpose. [Para 26) [311-D, E]
B 1.4. Where the fixation of rate or determination of the
amount is made individually, depending on the context
in which this is to be done, there may be justification or J. -
necessity to give opportunity of hearing to the person(s)
concerned; But where the rate is fixed for pmsons at
c large the only way by which such opportunity can be
given is to notify the rates and then invite ohjections.
There is no such provision. In the absence of any
mechanism provided in the Tariff notification, it would not
be feasible at all. [Para 27) [315-F, G]
D
2.1. The validity of the formula had bee11 upheld
earlier. High Court noted that though by the impugned
circular dated 31.5.1999 the rates of fuel surcharge have
been fixed for the years 1993-94 (July 1993 to March 1994)
to 1997-98, the correctness of the rates fixed for the y.)ars
E 1993-94 (July 1994 to March 1994) to 1995-96 1111ere not
,,
challenged and correctness of the rates for the
subsequent years only was under challenge. !Para 29)
[317-C, DJ

F Bihar State Electricity Board and anr. v. Bihar 440 Volt
Vidyut Upbhokta Sangh and Ors. 1997 (11) sec 380 and
Kera/a State Electricity Board v. S.N. Govind Prabhu &
Brothers AIR 1986 SC 1999, referred to.
2.2. The Electricity Board is entitled to levy fuel
G surcharge on the consumers receiving high tension .___
supply leaving out the consumers coming n other
categories. [Para 30) [317-F]
Maharashtra State Electricity Board v. Kalyan Borough
Municipality AIR 1968 SC 991; Mis Rohtas Industries Limited
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 295
ENTERPRISES & ORS.
:.,'
v. Chairman, Bihar State Electricity Board AIR 1984 SC 657, A
relied on.
3.1. It is not in dispute that TVNL came into existence
in 1996-97 whereas while calculating the electricity 1991-
92 is to be treated as the base year. As a matter of fact, it
was on that ground, namely, that a different base year i.e. B
1992-93 was provided for computing the increase in the
-J,
average unit rate of purchase of electricity from external
sources, that the High Court directed the Board to
consider amending clause 16.10.3 so as to provide for the
same base year i.e. 1991-92 with respect to both the c
increase in the average cost of generation and increase
in the rates of purchase, and accepting the verdict of the
High Court the Board amended the last part of clause
:
16.10.3. Purchase of electricity from TVNL which
admittedly came into existence in the year 1996-97, D
,. therefore, cannot be treated as component of H3 i.e.
increase in the average unit rate of purchase of electricity
llJ' from "any other source". As a matter of fact, the case of
writ petitioners was that the TVNL is nothing but a unit
of the Board in disguise of a subsidiary company and, E
therefore, could not be treated as a, component of H3. It
may not be necessary to go behind the veil of the
separate legal character of the TVNL. The fact that TVNL
did not exist in the year 1991-92 and came into existence
" only in the year 1996-97 is sufficient to justify its deletion F
as component of H3. [Para 33] [319-F, G, H; 320-A, B, C]
3.2. The relevant clause of the formula, after
amendment, reads, "the said increase to be calculated
with respect to the year 1991-92" ( last para of clause
< 16.10.3). The amendment has been made in the light of G
~
the decision of the High Court which rightly held that it
is not possible to allow the Board to include purchase of
electricity as a component of H3 without suitably
amending the formula in accordance with law. [Para 33]
[320-F, G, H; 321-A] H
296 SUPREME COURT REPORTS [20C9J 6 S.C.R.

A 3.3. As regard "deemed supply" by thE! Board to
TISCO, the High Court noticed that under a tripartite
agreement between the Board, the DVC and the TISCO,
with the consent of the State Government, the electricity
is being supplied directly by the DVC to the TISCO but
B such supply is treated as made by the Bo.ud to the
TISCO. High Court held that the Board cannc t treat the
sale of electricity by the DVC to the TISCO as a separate
class or category for the purpose of computing D3. The
computation of D3 to this extent, was rightly held to be
c not correct. [Para 34] (321-A, B; 322-D]
4.1. The computation of the rates of fuel surcharge
by the impugned circular for the years 19!16-97 and
onwards so far as it relates to the purchase of electricity
from TVNL and "deemed supply" by the Board to TISCO
D thus does not appear to be in accordance with the
formula. Fuel surcharge has to be calculated stri c:tly within "
the framework of the formula. If any extraneous element
has crept in, the computation to that extent mu:;t be held ?
to be not in accordance with law and accordingly
E modified .. (Para 35] (322-E, F]
4.2. The fact that the Board has had to 1>ay large
amounts as delayed payment surcharge (DPS) to the
external agencies from which it has been purchasing
electricity is· more or less an admitted position. The case
F of the Board, however, is that the default in payment was
mainly on account of defaults committee! by the
consumers themselves. High Court found subi;tance in
the stand of the Board. The fact that the consumers at
large have not been paying the dues on time and many
G of .them have been making only part payment on the
strength of interim orders of Courts are facts which are
not disputed. If the consumers do not pay the dues to the
Board, they cannot be heard to make any complaint
against payment of DPS by the Board to the external
H agencies. [Para 37] (323-E, F, G, H]
BIHAR STATE ELECTRICITY BOARD v. PULAK 297
ENTERPRISES & ORS.
I
.<("
5.As regards the non-accounting of Rs.100 Crores A
paid by Coal Companies to the Board, the High Court
observed that payment of the amount would be relevant
consideration while calculating the rate of fuel surcharge
for the year 1998-99 and not 1997-98. It is directed that
adjustment of Rs.100 crores be worked out accordingly. B
[Para 45] [326-A, C, D]
6. Nothing material could be highlighted as to how
-~
the reasons of the High Court suffer from any infirmity.
[Para 44) [325-G]
c
Case Law Reference:
1997 (11) sec 380 referred to para 2
AIR 1978 SC 1296 relied on para 21
AIR 1984 SC 657 relied on para 22 D
• AIR 1986 Supreme
Court 1999 relied on para 22
AIR 1975 SC 460 referred to para 23
AIR 1987 SC 1802 referred to para 24 E
- 1990 (3) sec 223 referred to para 25
AIR 1968 SC 991 relied on para 30
>'."
AIR 1984 SC 657 relied on para 30
F
AIR 1986 SC 1999 referred to para 31
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7220-7239 of 2000.
From the Judgment & Order dated 26.06.2000 of the High
Court of Judicature at Patna in CWJC No. 5542, 2009, 2087, G
,.-..i
1655, 1807, 1971, 1861,5592,5624,5728, 5819,5861,5993,
6054, 6079, 6248, 6249, 6275, 6358 and 6490/1999.
WITH
C.A. Nos. 2560/2009, 2561/2009, 2555-2559/2009. H
298 SUPREME COURT REPORTS [2009] 6 S.C.R.

A V.R. Reddy, Mir Jha, Sunil Kumar, Harish N. Salve, D.A.
Dave, Navin Prakash, Sumant Bhardwaj, An ta Kanungo,
Mridula Ray Bharadwaj, L.K. Bajla, Praveen I< umar, Gopal
Prasad, R.N. Karanjawala, Nandini Gore, Debmalya Banerjee,
Bharat Singh, Manik Karanjawala, Jayant Mohan, Pragya Singh
B Baghel, Ajit Kumar Sinha, Shree Prakash Sinha, Sunita
Sharma, Manjula Gupta, Gopal Prasad, S. Chandra Shekhar,
Himanshu Shekhar, Gopal Singh, Vivek Singh for 1he appearing
parties.
The Judgment of the Court was delivered b\'
c DR. ARIJIT PASAYAT, J. 1. Leave granted in Special
Leave Petitions.
2. These appeals are directed against tl1e common
judgment of the Patna High Court allowing the batch of writ
D petitions. The dispute relates to fuel surcharge. Tl1e validity of
levy has been upheld by this Court in Bihar Sta;'e E/eetricity
Board and Anr. v. Bihar 440 Volt Vidyut Upbhoktet Sangh and
Ors. (1997 (11) SCC 380). Therefore, the dispute before the
High Court related to method of calculation and i11 substance
E the rate of fuel surcharge.
3. The Board has its own power generation u11its namely,
Patratu Thermal Power Station, Barauni Thermal Power Station
and Muzaffarpur Thermal Power Station. The powe ·generating
from these units is not sufficient and, therefore the Board
F purchased from other sources in order to meet the
requirements of power supply to its consumers. The sources
from which the Board purchases power are Dami)dar Valley
Corporation, National Thermal Power Corporatior, Tenughat
Vidyut Nigam Ltd., Uttar Pradesh Electricity Boetrd, Orissa
G State Electricity Board, Power Grid Corporation of India Ltd.
According to the Board, the power purchased from outside
sources_ forms the bulk of the total power supplied by the Board.
In other words, power generated by the generating units of the
Board is much less in comparison to the purchased power from
H outside sources.
BIHAR STATE ELECTRICITY BOARD v. PULAK 299
• ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
-T
4. The Tariff framed by the Board in exercise of its powers A
conferred upon it under the provisions of Section 49 of the
Electricity (Supply) Act, 1948 (in short the 'Act') vide Tariff
Notification dated 21.6.1993 published in the Bihar Gazette on
23.6.1993 which came into effect from 1. 7.1993 prescribes
rates for supply of power to the consumers of the Board. B
Because of infrequent revision of tariffs and in order to
neutralize increase in the cost of generation and purchase of
"' -:.;. power, the 1993 Tariff provides for levy and collection of fuel
surcharge from the consumers of the Board.

5. It is submitted that fuel surcharge is a part of tariff and, c
in reality, a surcharge levied to meet the increased cost of
generation and purchase of electricity. This Court in a number
of decisions has upheld levy of fuel surcharge.

6. The 1993 Tariff provides for a formula for levy and D
collection of fuel surcharge from the consumers of the Board
from time to time. The validity of the formula for levy of fuel
surcharge has been upheld by this Court in Bihar State
Electricity Board's case (supra).
E
7. Section 49 of the Act empowers the Electricity Board
to frame tariff and lay down the terms and conditions of supply
of electricity as it thinks fit. In exercise of the said power the
Bihar State Electricity Board (hereinafter referred to as the
'Board') framed tariff vi de notification dated 21.6.1993,
published in the Bihar Gazette on 23.6.1993 superseding the F
earlier tariff notifications dated 26.8.1991 and 3.7.1992. The
tariff notification dated 21.6.1993 is effective from 1.7.1993.
Under clause 16.10.1 of the said tariff the consumers of the
categories specified therein are required to pay operational
~ .! surcharge at a rate to be determined every year in accordance G
with the formula prescribed, in addition to other charges as laid
down in the tariff schedule. In terms of clause 16.10.2 the
operational surcharge consists of two elements (i) fuel
surcharge and (ii) other operational surcharge. Clause 16.10.3
lays down the formula for determining fuel surcharge applicable H
300 SUPREME COURT REPORTS [2009) 6 S.C.R.

A during the financial year in terms of paise per unit. Clause
16.10.4 prescribes the formula for determine: tion of 'other
operational surcharge'. It may be mentioned hem itself that the
provision regarding 'other operational surcharge' has been held
to be arbitrary and struck down. Clause 16.10.5 provides that
B the operational surcharge for a financial year shal be calculated
by the Board after the expiry of the financial yHar. Till actual
calculation of the operational surcharge for a fir ancial year is
made, operational surcharge during the financial year may be
levied at a rate provisionally C!llculated on monthly or quarterly
C or half-yearly basis as the Board may decide. In case of short
or excess realisation the amount is to be adjusted in the next
bill be served on the consumers. Clause 17 lays :iown that the
existing rate of fuel surcharge notified in letter no.JVCS/Costing-
44/92-93/397 dated 29.3.1993 amounting to 32 paise per unit
has been merged in the tariff. Any increase in the operational
0
surcharge thereafter only shall be levied.

8. In order to appreciate the facts to be stated hereinafter
it would be appropriate to notice the formula for computation
of the fuel surcharge laid down in clause 16.10.3 as under:
E S1 =A1xA3+B1xB3+C1xC3+D1xD3+ E1xE3xF1xF3+G1
xG3+H1xH3 (A2+B2+C2+D2+E2+F2 +G2+H2) ....
Whereas,
..
F
S1 = Average Fuel Surcharge, per unit in
paise applicable during the financial
year.

A1 , 81 ,C1 = Unit generated from PTP~i, BTPS &
MTPS respectively.
G
01,E1,r1,G1 ,H1 = Unit purchased frC1m DVC,
UPSEB,OSEB,NTPS,PGCL and any
other source respectively.

H A2,B2,C2 = Unit sold out of sent out from PTPS,
BIHAR STATE ELECTRICITY BOARD v. PULAK 301
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

BTPS & MTPS on which fuel surcharge A
is leviable.

02,E2,F2,G2,H2 = Unit sold, out of purchased from OVC,
UPSEB, OSEB, NTPC, PGCL and any
other source respectively during the B
year on which Fuel Surcharge is
leviable.

A~,B3,C3 = Increase in average cost qt Fuel
Surcharge in paise per unit computed C
for Board's Generation at PTPS, BTPS
and MTPS

03, E3,F3,G3,H3 = Increase in average unit rate of
purchase of energy from DVC, UPSEB,
0
OSEB, NTPC, PGCL & any other
source respectively during the year for
which the surcharge is to be calculated.

The said increase to be calculated with
respect to the year 1992-93 (after E
amendment, read 1991-92)
(In the above, PTPS stands for Patratu Thermal Power Station,
.~ BTPS for Barauni Thermal Power Station, MTPS for
Muzaffarpur Thermal Power Station. They are Board's own F
generating stations. Likewise, DVC stands for Damodar Valley
Corporation, UPSEB for Uttar Pradesh State Electricity Board,
OSEB for Orissa State Electricity Board, NTPC for National
Thermal Power Station and PGCL for Power Grid Corporation
of India Limited. They are external sources of supply of G
- .. electricity to the Board.)

9. The manner of calculation of increase in average cost
of fuel in Board's own generating stations i.e. A3, B3 and C3,
and increase in average unit rate of purchase from outside
sources Le. 03; E3 etc. is laid down in clause 16.10.3.1. As H
302 SUPREME COURT REPORTS [2Q,J9] 6 S.C.R.
I

A regards the fonner, the calculation is to be made in the following Y-
manner.

"(a) Patratu Thermal Power Station:- The rate in paise per
unit shall be based on the average cosi of 9270.08 paise
per 10,00,000 K.Cal. of fuel delivered at the bL nkers of the
B
Board's generating station at Patratu. In the E!Vent of rise
or fall in the aforesaid cost, at any time, the rate per unit
will be increased or decreased as the case may be, by
0.3537 paise for each one per cent variation in the cost
of fuel per 10;00,000 K.Cal. In the cost 1)f fuel per
c 10,00,000 K.Cal. In calculating the above variation,
percentage variation of 0.5 and above will be treated as
next higher percentage and percentage variation, below
0.5 will be ignored.

D (b) Barauni Thermal Power Station:- The rate i11 paise per
unit shall be based on an average cost of 174C7.97 paise ·
per 10,00,000 K.Cal. of fuei delivered at the bunkers of the
'Board's generating station at Barauni. In the event of rise
or fall in the aforesaid cost, at any time, the rate per unit
will be increased or decreased, as the case rnay be by
0.8539 paise for each one per cent variation i 1 the cost
of fuel per 10,00,000 K.Cal. In calculating the above
variation, percentage variation of 0.5 and above will be
treated as next higher percentage and percentage
variation below 0.5 will be ignored.
F
(c) Muzaffarpur Thermal Power Station:- The rat;) in paise
per unit shall be based on an average cost of 18166.04
paise per 10,00,000 K.Cal. of fuel delivered at: the bunkers
of the Board's generating station at Muzaffarpur. In the
,., event of rise or fall in the aforesaid cost , at airy time, the j. •

rate per unit will be increased or decreased, as the case
may be by 0.7368 paise for each one percent variation in
the cost of fuel per 10,00,000 K.Cal. In calculating the
above variation, percentage variation of 0.5 and above, will
H be treated as next higher percentage and percentage
BIHAR STATE ELECTRICITY BOARD v. PULAK 303
·- \ ENTERPRISES l/.. ORS. [DR. ARIJIT PASAYAT, J.]

variation below A

0.5 will be ignored."

As, regards the latter :i.e. electricity purchased from
external sources the clause says that the actual increase in the
average unit rate of purchase will apply, that is to say, will be B
the basis.
~1
10. On 4.4.1994 the Board issued circular stating that on
final calculation the fuel surcharge for the period 1992-1993 had
been determined as 26.14 paise per Kwh. On 5.1.95 the Board c
issued another circular calculating the fuel surcharge for the
period July 1993 (i.e. after coming into force of the new tariff)
to March 1994 to be 25.98 paise per Kwh. I am not referring
to the rate of other operational surcharge under clause 16.10.4
which was also notified by the same circular because that has D
.~ already been struck down. The consumers were billed
accordingly. Writ Petitions were filed challenging the rates in
CWJC No.2771 of 1995(R) and analogous cases. During the
pendency of the said writ petitions the Board proposed certain
amendments in clauses 16.10.3, 16.10.3.1and17, vide letter
E
no.135 dated 28.12.1995. I shall refer to the salient features of
'·.
the proposed amendment later. The implementation of the_
circular dated 5.1.1995 was kept pending vide circular dated
8.2.1995 in the meantime. On 8.3.1995 and 17.4.1995 circulars
were issued directing payment@ 15 paise/Kwh from 1.7.1993
to 31.3.1995 instead of 25.98 paise per Kwh as fuel surcharge F
as stipulated in circular dated 5.1.1995. However, by circular
dated 20.9.1995 the said circulars dated 8.3.1995 and
17.4.1995 were withdrawn and the earlier circular dated
5.1.1995 by which fuel surcharge @ 25.98 paise/Kwh had been
fixed was restored G
• -4

11. The writ petitions, CWJC No.2771 of 1995(R) and
analogous came up for hearing in October 1996. With the
consent of the Board, on 17.10.1996 the High Court constituted
a High Level Committee consisting of two nominees each of H
304 SUPREME COURT REPORTS [2009] 6 S.C.R.

A the consumers and the Board and two independent members.
The Committee was directed to calculate the fuel surcharge in
terms of 1993 tariff, particularly taking into accounl clause 17,
and submit report by 31.1.1997 to the Chairman of the Board,
The writ petitions, were thus disposed of. The High Court made
B it clear that after submission of such report, anybJdy feeling
aggrieved may move the appropriate forum or cciurt of law.
From the records of the case it appears that an irterlocutory
application was made by the concerned petitioners 1)f the case
making a gr!evance that certain vital documents ha:l not been ·
c made available by the Board to the Committee 11ide order
dated 29.1.1997 the High Court recorded the submission of the
counsel for the Board that the documents required shall be
furnished within two weeks. Time for submission of the report
was accordingly extended to 31.3.1997 and the ec:1rlier order
dated 17.10.1997 was modified to this extent.
0
12. At this stage the Board issued circular dated 5.2.1997
notifying the provisional rates of fuel surcharge as 42 .89 paise/
Kwh for 1994-95, 72.12 paise/Kwh for 1995-96 and ·102 paise/
Kwh from 1.4.1996 onwards. This led to fresh wrii petitions
E being CWJC Nos.1632 of 1997 and analogous cases. On
12.3.1997 when the cases came up for preliminary hearing .,
dispute again arose as to circumstances in which the aforesaid
Committee had not finalised the report. After hearin!l counsel
for the parties, however, a consent order was passed to the >'·
F effect that the Committee shall finalise its report on '4.3.1997
when it was scheduled to meet next, on the basis of documents
already on record and submit the report to the High Court on
17.3.1997. On 16.3.1997 the Committee submitted its report.
On 21.3.1997 when the matter came up for further hearing the
G High Court noted that the findings reached by the members of
the committee were not unanimous. While four membHrs of the .._ •
Committee had worked out the fuel surcharge@ 12.:18 paise/
Kwh for the period from July 1993 to March 1994, 21.:;3 Paise/
Kwh for the period 1994-95 and 44.00 paise/Kwh (prcvisional)
H for the period 1995-96, the other two members w1o were
BIHAR STATE ELECTRICITY BOARD v. PULAK 305
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
•
'>/
Board's nominees, had worked out the same@ 25.98 paise, A
43.98 paise and 72.12 (provisional) paise per Kwh for the
aforesaid periods respectively. As an interim measure the High
Court directed the petitioners to pay fuel surcharge for the
periods July 1993 to March 1994 and 1994-95 at the rates
worked out by four members of the committee, which were in B
their favour, and for the periods-1995-96 and 1996-97 @ 46.37
paise/Kwh and 56.37 paise/kwh offered by them. CWJC Nos.
J 1632 of 1997 and analogous cases were finally heard and
decided by judgment dated 30.6.1998.

13. At this stage it may be relevant to advert to the Board's c
letter dated 28.12.95, referred to above, suggesting certain
amendments in clauses 16.10.3, 16.10.3.1 and 17. The
substance of the proposed amendment was that instead of
calculating the increase in the average unit rate of purchase of
energy from DVC, UPSEB, OSEB, NTPC, PGCL and any D
. . other
--- source with respect to the year _1992-93, as prescribed in
clause 16.10.3 the same should be calculated with respect to
the year 1991-92, and similarly with respect to the year 1991-
92, and similarly in clause 16.10.3.1 the average cost of fuel
in respect of energy generated at Board's own generating E
stations be computed on the base rate of 1991-92 and not
1992-93. In other words, the base year with respect to these
two sets of components was sought to be changed from 1992-
93 to 1991-92. Clause 17 was also proposed to be amended
by that in accordance with the instructions issued by the F
Government of Bihar to the Board, the increase in the rate of
fuel surcharge between January 1992 and June 1993 which
came to 20 paise (12 paise as in January 1992 and 32 paise
as in June 1993) had been merged in the tariff and thus any
increase in the fuel surcharge thereafter only shall be levied G
~- ~4
after accounting for the increase already merged in the tariff.

. 14. From the judgment dated 30.6.1998 disposing of
CWJC Nos.1632 of 1997 and analogous case, it appears that
the validity of the rates of fuel surcharge was challenged mainly
H
306 SUPREME COURT REPORTS [2009] 6 S.C.R.

A on two grounds:- (a) the cost of: generation at the Board's own
generating stations, namely, Patratu, Barauni and Muzaffarpur
Thermal Power Stations had been worked out treating 1991-
92 as the base year but the cost of the unit purchc: sed from
DVC, NTPC etc. had been calculated on the basis o' 1992-93
B rates. According to the writ petitioners in working out the rate
the values to be taken into account must correspond to the
same year lest determination could become irrational and
.._-
arbitrary: (b) the merger of fuel surcharge as on 1. 7.9:1 in terms
of ~1 ause 17 of the tariff was not correct. The High CC1u~ noted
c that the objections of the petitioners were in consonance with
the Board's own decision vide letter dated 28.12.1995 (supra)
by which the Board had suggested certain amendme'1ts in the
relevant clauses of the tariff to the State Government. The High
Court, however, took the view that in terms of the order dated
17.10.1996 passed in CWJC No.2771 of 199!i(R) the
D
Committee was required to submit its report to the Chairman
of the Board and not to the High Court. Observing that the
report of the committee would assist the Board in c:>ming to
fair and just decision, and if the Board was satisfied that the
tariff modification requires any modification it was opnn to it to
E modify the tariff in accordance with law, the High Cowt instead
of finally deciding the. issues itself directed the Board to
consider the report of the committee submitted before the High
Court on 16.3.1997, and in consultation with tr e State
Government, take a final decision, by reasoned order, on the
F points:-

(i) Whether any modification of clause 16.10.3 of the
tariff notification published on 23.6.93 is required
so that the increase in the average uni: rate of
G purchase of energy from DVC, NTPC etc. should
be calculated with respect to the year 1991-92
)- .
instead of the year 1992-93.

(ii) Whether in terms of clause 17 of the aforeE aid tariff
notification, 20 paise per Kwh the increasa in fuel
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 307
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
\ surcharge which has been merged in the basis tariff A
should be considered for adjustment, instead of 32
paise, in terms of clause 17 of the aforesaid
notification. If so, whether the impugned circular
dated 5.2.97 be not withdrawn and the consumers
be given the benefit of discredit to the period July B
1993 to March 1994 and thereafter, and clause 17
of the tariff notification under section 93 be
--:J amended appropriately.

15. The High Court diretted that till the Board takes a final
decision in the matter, the interim order passed by the Court c
on 21.3.1997, referred to above, shall operate. Thereafter, the
petitioners shall be liable to pay fuel surcharge in accordance
with the decision that may be taken by the Board. Any person
aggrieved by the decision of the Board will be at liberty to

. . challenge the same in accordance with law.

16. The submission of the writ petitioners that the Board
D

has not passed a 'reasoned order'. or otherwise failed to
implement the direction of the High Court was rejected. It was
observed that the High Court had directed the Board to decide E
whether any modification in clause 16.10.3 of the tariff
notification was required so as to make the base year with
respect to average unit rate of purchase of energy from DVC,
... NTPC etc. at par with the increase in cost of generation at
Board's own generating stations and to adjust the merger of
F
the existing fuel surcharge of 20 paise/Kwh, by a reasoned
order. A favourable ·decision having been taken and the
aforesaid clauses suitably amended, the High Court felt that
there is no scope for further argument in this regard. As far as
the requirement of passing a "reasoned order" is concerned,
the facts and figures contained in the agenda notes dated
G
... .-J.
26.11.1998 and 6.1.1999 which were the basis of the proposed
amendments and revision in the rates, can be treated as
reasons for the same. The direction of the High Court to pass
a reasoned order cannot be interpreted as a direction to set
H
308 SUPREME COURT REPORTS [2009] 6 S.C.R.

A out reasons for fixing the particular rates of fuel surchcirge which J
is merely an arithmetical exercise to be workod out in
accordance with the prescribed formula. The Board is a body
corporate and it takes its decision on the basis of the facts and
figures furnished to it in the agenda notes supported by
B materials. It is apparent that after the decision of the High Court
the matter was examined at different levels and finall f the said
agenda notes dated 26.11.1998 and 6.1.1999 were put up for
consideration which were approved respectively on 1'L12.1998
and 21.1.1999. High Court did not find ~ny substance
~---
whatsoever in the contention that the Board failed to implement
c the direction of the High Court, by not passing a reaso 1ed order
or otherwise.

17. The submission that the dispute should be mferred to
a Committee of experts was rejected by the Hinh Court
D considering the nature of the dispute. It was of the 1iew that
such a course should be taken only when the Cou i cannot ).

decide the dispute. There may be justification to constitute a
committee and refer the dispute to it when the relevant data
have to be gathered or facts have to be ascertained without
E which the dispute cannot be resolved. This normally i:; done in
public interest litigation. In adversary litigation it is for tre parties
to produce materials in support of their respective cl.~im. The
Court is not supposed to make a roving enquiry for allowing or
disallowing the claim of one or the other party. It is tru :l that on
F the previous occasion in CWJC No.2771 of 1995 ®,the High
Court did constitute a Committee but that was with the consent
of the Board. Counsel for the Board pointed out in course of
his submission that the Board wanted to be assured i:self that
the stand taken by it in letter dated 28.12.95 to the State
G Government suggesting amendments in clauses 16." 0.3 and
17 was correct. >- •

18. As the aforesaid pleas were taken for the first time in
course of argument, the Board was allowed opportun ty to file
written submission. In its written submission the Board took the
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 309
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

stand that T & D losses do not form part of calculation of fuel A
surcharge and the reason for the difference of 8655.78 MU is
the existence of large number of defective meters and
meterless supply of electricity to consumers belonging to
different categories, particularly, agriculture and domestic
categories. The statement in paragraph 3.7 of Chapter Ill of the B
GAG report actually represents the T&D losses based on units
actually metered and does not include power sold to the
consumers having unmetered supply or the consumers having
defective or burnt n:ieters. That is why in the accounts, the units
sold were worked out by dividing the assessed revenue by the c
tariff rates including fuel surcharge. It has been stated that in
the case of defective meters and meterless consumers, though
bills are raised, the corresponding quantum of power sold
cannot be determined. Hence the assessed revenue (in
accordance with the Board's tariff) is treated as the basis for D
computation of power sold. The GAG, it has been stated, has
approved this procedure and granted its statutory certificate to
the effect that the accounts of the Board give a "true and fair
view of the state of affairs of the Board".

19. The Board further took the stand that if the rates of fuel E
surcharge were to be determined only on the basis of metered
sales the rates would be considerably higher than already
determined by the Board. This would be evident from the
following chart:
F
SI. Particulars July 93 1994-95 1995-96 1996-97
March 94
1. Amount recove- 9536.09 16328.20 28431.10 53385.22
rable as fuel
surcharge
(Rs.in lakhs) G

2. Units on which
Fuel surcharge 2645.76 3437.95 3822.96 3834.04
is leviable H
310 SUPREME COURT REPORTS [2009] 6 S.C.R.

A (in MKwh)

3. Rate of fuel 36.04 47.49 74.37 139.24
surcharge
(in P/Kwh)
B
4. Less (20 P/Kwh)
As per the
Hon'ble High Court's
Order dated 30.6.98
Passed in CWJC
C No.1632of99 20.00 20.00 20.00 20.00

5. Net rate (P/Kwh)
If T&D losses as
Per serial No.6
D Of table at para 3.7
Of CAG report at page
80 is taken into
account (3-4) 16.04 27.49 54.37 119.24

6. Present rates of fuel
E Surcharge as per the
Impugned notification
Dated 31.5.1999 23.38 21.33 48.54 99.34

20. The above calculation has been explained by pointing
F out that while A 1, B1, C1 etc. and A3, B3, C3 etc. ::omponents
of the Formula indicating the power pumped into the Board's
system for transmission or distribution to different points in the
State and the incremental fise in the average cost ::if fuel at the
Board's Therm.al Power Stations or power pure hased from
G NTPC, DVC etc. are not affected by the T&D los;es, A2, 82,
C2 etc. component of the Formula representing 1he quantum
of power sold to categories from whom fuel surcharge is
leviable would be reduced if power supplied to the1 consumers
having defective meters etc. is excluded from the total quantum
H of power sold. Thus, while the numerators would remain
BIHAR STATE ELECTRICITY BOARD v. PULAK 311
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
.....
~ unchanged, the denominators would get reduced resulting in A
higher rates of fuel surcharge. In the above view of the matter,
it was stated that keeping in view the meterless and defective
meter supply of the electricity the Board has made its own
realistic calculation of T&D losses as reflected in the table in
para 3. 7 of the CAG report which has been accepted by the B
_J
CAG. The Board has accordingly asserted that the table shown
~··
in para 3.7 of the report regarding "percentage of actual loss
of energy available for sale" has no nexus with the computation
-...., of rates of.fuel surcharge under the formula in clause 16.10.3..
c
21. The significance of the question as to whether fixing
the rate of fuel surcharge is a legislative function or a non-
legislative function is that if the function is held to be legislative,
in the absence of any provision in that regard the principles of
natural justice would not be applicable and the scope of judicial
D
review would also be limited to plea of discrimination i.e.
.. violation of Article 14 of the Constitution of India, 1950 (in short
the 'Constitution'). As a general proposition, the law on the point
is settled. In Prag Ice and Oil Mills v. Union of India (AIR 1978
SC 1296), a Seven-Judge Bench of this Court by majority
observed: E

~
"In the ultimate analysis the mechanics of price
fixation has necessarily to be left to the Judgment of the
;
executive and unless it is patent that there is hostile
..,;, discrimination against a class of persons, the processural F
basis of price fixation has to be accepted in the generality
of cases as valid."

-l''
22. The legal position was reiterated in Rohtas Industries
v. Bihar State Electricity Board, (AIR 1984 SC 657) and Kera/a
G
State Electricity Board v. Mis S.N. Govind Prabhu & Brothers
..-• (AIR 1986 Supreme Court 1999), wherein it was observed,
"Price fixation is neither the forte nor the function of the Court".

23. As regards the nature of the function, in Saraswati
Industrial Syndicate Limited v. Union of India (AIR 1975 SC H
312 SUPREME COURT REPORTS [2009] 6 S.C.R.

A 460), the Court had observed that the price fixation is more in !.
the nature of a legislative measure even though it may be based
upon objective criteria found in a report or other material. It
should not, therefore, give rise to a complaint that rule of
natural justice has not been followed in fixing the price. In Prag
B Ice and Oil Mills v. Union of India (supra) the Court observed:
'We think that unless by the terms of particular statute
or order, price fixation is made a quasi judicial function for
specified purposes or c2ses it is really legislative in
character .... .the legislative measure does not concern
c itself to the facts of an individual case. It is meant to lay
down a general rule applicable to all persons or objects
or transactions of a particular kind of class."

24. In Union of India v. Cynamide India Ltd. (AiR 1987
D sc· 1ao2) this Court held that except in cases where it becomes
necessary to fix the price separately in relation to individuals,
price fixation is generally a legislative act, the performance of
which does not require giving opportunity of hearing. Following
passage from the judgment may usefully be noticed:
E
"Legislative action, plenary or subordinate, is not
subject to rules of natural justice. In the case of
Parliamentary legislation the proposition is self-evident. In
the case of subordinate legislation, it may happen that
Parliament may itself provide for a notice and for a hearing
F - there are several instance of the legislature requiring the
subordinate legislating authority to give public notice and
a public hearing before say, for example, levying a
municipal rate - in which case the substantial non-
observance of the statutorily prescribed mode of observing
G natural justice may have the effect of invalidating the
subordinate legislation, but where the legislature .has
chosen not to provide for any notice or hearing, no one can
;. ..
insist on it and it will not permissible to read natural justice
into such legislative activity."
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 313
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

25. Reference may also be made to a Constitution Bench A
decision in Shri Sitaram Sugar Company Ltd. v. Union of India
(1990 (3) sec 223).

26. In a sense, fixing rate of fuel surcharge under clause
16.10 of the Tariff notification is different from fixing the tariff
B
under Section 49 of the Act. Fuel surchatge is undoubtedly a
part of tariff. But fixing rates of consumption charges or the
-~ guaranteed charges or the fixed charges or the delayed
payment surcharge etc. and fixing rates of fuel surcharge do
not stand on par. Though rates of consumption charges etc. are
based on objective materials, there is enough scope for c
flexibility in fixing the rates. It also involves policy to fix different
fates for different categories of consumers. Such is not the
position with. the fuel surcharge. Clause 16.10.1 specifies the
categories coning in the net of the levy and clause 16.10.3
provides the formul_a. In simple words, the formula envisages D
"" addition of units generated or purchased and increased
average cost of fuel and average unit rate of purchase rates
and division of the total by the quotient is the average fuel
surcharge per unit (expressed in terms of paise) described by
denominator S1 in the formula. The whole exercise, it would E
appear, involves arithmetical accounting. There is no scope for
exercise of any discretion or flexibility. This distinction, however,
does not help the petitioners. It rather goes against them
because if fixing rate of fuel surcharge is just an arithmetical
exercise, giving opportunity of hearing would hardly serve any F
useful purpose. How mathematical in nature is the process of
computation is clearly illustrated in a chart which is part of
Annexure E series at page 290 of the Paper Book as under:
~

CALCULATION OF FUEL SURCHARGE RATE FOR
G
...- ,j THE YEAR 1996-97

FUEL SURCHARGE =

(A1xA3)+(81xB3)+(C1xC3)+(D1xD3)+(E1xE3)+(F1 xF3)+(G1xG3)
---------------------------------------------------------------------------- H
314 SUPREME COURT REPORTS [2009] 6 S.C.R.

A (A2+82+C2+02+E2+F2+G2)

1. A1 = Generation of PTPS = 1116.54
(MKWH)
A3 = Increase in Average
B cost of PTPS
(Paise/Kwh) = 17.33 = 1934.96
A1 x A3 (Rs. in lakhs)
t~
2. 81 = Generation of BTPS (MKWH) = 387.37
c 83 = Increase in Average cost of
BTPS (Paise/kwh) = 69.17
B1xB3 (Rs. In lakhs) = 2679.44
3. C1 = Generation of MTPS
(MKWH) = 213.52
0
C3 = Increase in Average
cost of MTPS ...
Paise/Kwh) =53.05
C1xC3 = 1132.72
E 4. 01 = Power purchase from
OVC (MKWH) = 2153.00
03 = Increase in Average rate
of OVC (Paise/Kwh) = 57.87
01x03 = 12459.41
F 5. E1 = Power purchase from
NTPC(MKwh) = 4047.70
E3 = Increase in Average rate
of NTPC (paise/kwh) = 69.50
G E1xE3 (Rs. In lakhs) = 28131.52
6. F1 = Power purchase from ~- ...
PGCIL(MKwh) = 507.22
F3 = Increase in Average rate
H
of PGCIL (Paise/kwh) = 18.12
BIHAR STATE ELECTRICITY BOARD v. PULAK 315
." ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

F1xF3 (Rs.in lakhs) = 919.08 A
7. G1 = Power purchase from
others(MKwh) = 737.82
G3 = Increase in Average rate
of others B
(Paise/kwh) = 60.57
G1xG3 (Rs. In lakhs) = 4468.98
Excluding prior period expenditure
8. Admissible prior period
expenditures. Rs. In lakhs) = 1659.11 c
(This is on the basis of
recommendation made by the
Committee constituted
by the Hon'ble High Court)
(I) Incremental cost of the year D
(A 1xA3)+(B 1xB3)+ ..... .
(G1xG3)(Rs.in Lakhs) = 53 385.22
9. Mer. A2 = B2+ ................ ..
G2(MKwh) =4473.47
Hence, Rate of fuel surcharge for E
the year (paise/Kwh) = 119.34
Less 20.00
Net rate of fuel surcharge for
the year (Paise/Kwh) =99.34
F
27. Where the fixation of rate or determination of the
amount is made individually, depending on the context in which
this is to be done, there may be justification or necessity to give
opportunity of hearing to the person or persons concerned. But
where the rate is fixed for persons at large the only way by which G
such opportunity can be given is to notify the rates and then
invite objections. There is no such provision. In the absence of
any mechanism provided in the Tariff notification, it would not
be feasible at all. Whenever the statute contemplates giving
such an opportunity a mechanism, such as, for fixing rate.s of H
316 SUPREME COURT REPORTS [2009] 6 S.C.R.

A municipal Taxes, while it is not so in the case of Income tax or ._
other taxes.

28. On behalf of the writ petitioners endeavour was made
to question the very basis of fixation of fuel surcharge. It was
submitted that though it is open to the Board to levy fuel
B
surcharge on certain specified categories of consumers aione
or even supply electricity free to certain categories of
consumers the unit rate should be worked out taking into .__~

account the entire units sold as is being done by the U.P. State
Electricity Board, Damodar Valley Corporation or even in Delhi.
c Fixing the rates of fuel surcharge on the basis of units sold to
only specified categories of consumers, it was submitted, is
arbitrary and discriminatory. The High Court noted that the
submission was in the teeth of formula contained in Clause
16.10. Relevant part of the formula was re-stated:
D
A2,B2,C2-Units sold, but of sent out from PTPS, BTPS
and MTPS on which fuel surcharge is leviable.

02 to H2- Units sold, out of purchased from DVC,
UPSEB, OSEB, NTPC, PGCL and any other
E
source during the year on which fuel surcharge is
leviable.

29. The High Court that A2,B2,C2,D2 etc. component of
the Formula represents the extent of units generated i.e. sent .~·

F out from the three generating stations or purchased from the
external sources. Counsel for the writ petitioners referred to
'comma' occurring prior to the words "out of'. Though
sometimes presence or absence of comma has been taken
aid of in interpreting the particular provision, the ordinary rule
G is that punctuation mark is a minor element in the interpretation
of Statute (See Aswini Kumar Ghose v. Arbinda Bose, AIR
1952 $upreme Court 369). More so, in the case of subordinate
·- ....
legislation. The words "out of' according to the High Court have
to be understood in the sense of "to the extent of', and so read;
H the formula postulates that so much of units out of, the units
BIHAR STATE ELECTRICITY BOARD v. PULAK 317
'). ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

generated or purchased on which fuel surcharge is leviable only A
is to be taken into account for determining the value of A2 to
C2 or D2 to H2. Omitting the part "out of.... " the formula would
read as follows, "units sold .... on which fuel surcharge is
leviable". In te;ms of clause 16.10.1, fuel surcharge is leviable
only on consumers in CS II and 111, LT. Industrial Service, High B
~.
Tension Service, Extra High Tension (EHT) arid Railways
-~ Traction Service categories, the units sold to other categories,
of consumers cannot, therefore, be taken into account for
determining the value of either A2.to C2 or D2 to H2. The validity
of the formula had been upheld earlier. High Court noted that c
though by the impugned circular dated 31.5.1999 the rates of
fuel surcharge have been fixed for the years 1993-94 (July 1993
to March 1994) to 1997-98, the correctness of the rates fixed
for the years 1993-94 (July 1994 to March 1994) to 1995-96
were not challenged. The correctness of the rates for the
D
• subsequent years only was under challenge.

~ 30. In Maharashtra State Electricity Board v. Kalyan
'
Borough Municipality, (AIR 1968 SC 991), this Court upheld
the constitutional validity of Section 49(3) of the Act. In Mis

"' Robtas Industries Limited v. Chairman, Bihar State Electricity E
Board, (AIR 1984.SC 657), this Court held that Section 49(3)
expressly authorises the Board to fix different tariffs for the
.. supply of electricity classifying the consumers into different
categories and fixing different tariffs. Thus, the Electricity Board
is entitled to levy fuel surcharge on the consumers receiving F
high tension supply leaving out the consumers coming in other
categories. While considering the validity of similar provisions
of the 1979 Tarjff of the Bihar State Electricity Board relating
to Fuel surcharge, the Court observed,
~~- G
"Though the nomenclature given to the surcharge is "fuel
surcharge" it is really a surcharge levied to meet the
increased cost of generation and·purchase of electricity ....
We see no force in the contention that the words "increase
in the average uriit rate of purchase of energy" used in C1
H
318 SUPREME COURT REPORTS [2009] 6 S.C.R.
1'
A below paragraph 16.7.2 should be interpreted as taking
their colour from the contents of paragraph 16.7.3. From a
reading of these provisions it is abundantly clear that the
entire increase in cost incurred in the purchase of energy
from DVC and UPSEB has to go into the .compensation
B of the surcharge leviable under paragraph 16.7"

31. In Kera/a State Electricity Board v. S.N.Govind Prabfw
& Brothers, (Al R 1986 SC 1999), the Court noticed the ·
amendments in section 59 of the Act and held that a plain •
· reading of section 59, as amended, plainly indicates that it is
C the mandate of Parliament that the Board should adjust its tariff
so that after meeting the various expenses properly required to
be met, a surplus is left. It will not be out of place to mention
here that in terms of section 59, as it stood prior to 1978, the
Board was supposed to adjust its tariff in such a way as not to
D incur loss. By amendment made in 1978, the Board was
supposed to adjust its tariff so as to ensure that the total
revenues in any year of account should after meeting expenses
"leave such surplus as State Government may, from time to
time, specify". The section was amended again in 1983 and
E as per the 1983 amendment the Board is supposed to adjust
its tariff in a manner so as to ensure that the total revenues in
any year of account after meeting all expenses shall leave such
surplus as is "not less than three per cent or such higher
percentage as State Government may by notification specify".
F After noticing the said amendments this Court observed:

"The original negative approach of functioning so as not
to suffer a loss is replaced by the positive approach of
requiring a surplus to be created. The quantum of surplus
G
is to be specified by the State Government. What the State
Government is to specify is the minimum surplus. This is
-.
made clear by the 1983 amendment which stipulates a
minimum of 3 per cent surplus in the absence of
specification by the State Government which has the liberty
"to specify a higher percentage than three. The failure of
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 319
.* ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
the government to specify the surplus which may be A
generated by the Board cannot prevent the Board from
generating a surplus after meeting the expenses required
to be met. Perhaps, the quantum of surplus may not
exceed what a prudent public service undertaking may be
expected to generate without sacrificing the interests it is B
expected to serve and without being obsessed by the pure
~
profit motive of the private entrepreneur. When that
happens the court may strike down the revision of tariffs
as plainly arbitrary. _But not until then. Not merely because
surplus has been generated, a supply which can by no c
means to be said to be extravagant."

32. High Court noted that the purchase of electricity from
Tenughat Vidyut Nigam Limited (TVNL) has been treated as a
component of H3 i.e. "any other source", but as the TVNL came
,, into existence only in the year 1996~97 it could. not be treated D
as a relevant factor having regard to the fact that in computing
the fuel surcharge, increase in the average unit rate of purchase
of electricity has to be calculated treating 1991-92 as the base
year. Secondly, it was contended that the Board has treated
the supply of electricity by the DVC to the TISCO as "deemed E
supply" by the Board to TISCO at a different rate which is. not
in accordance with the formula. As noted above the High Court
--< found the objections to be well founded.

33. It is not in dispute that TVNL came into existence in F
1996-97 whereas while calculating the electricity 1991-92 is to
be treated as the base year. As a matter of fact, as seen above,
it was on that ground, namely, that a different base year i.e.
1992-93 was provided for computing the increase in the
.... ~~. average unit rate of purchase of electricity from external
G
sources, that the High Court directed the Board to consider
amending clause 16.10.3 so as to provide for the same base
yea~ i.e. 1991-92 with respect to both the increase in the
average cost of generation and increase in the rates of
purchase, and accepting the verdict of the High Court the Board
H
320 SUPREME COURT REPORTS [2009] 6 S.C.R.

A _amended the last part of clause 16.10.3. Purchase of electricity
from TVNL which admittedly came into existence in the year
1996-97, therefore, cannot be treated as component of H3 i.e.
increase in the average unit rate of purchase of electricity from
"any other source". As a matter of fact, the case of writ
B petitioners was that the TVNL is nothing but a unit of the Board
in disguise of a subsidiary company and, therefore, could not
be treated as a component of 113. It may not be necessary to
go behind the veil of the separate legal character of the TVNL.
The fact that TVNL did not exist in the yea,r 1991-92 and came
c into existence only in the year 1996-97 is sufficient to justify its
deletion as component of H3. Counsel for the Board accepted
that if TVNL is to be treated as a source, some mechanism
has to be worked out, and the Court has then to see whether it
is rational. The Board submitted that if the High Court comes
to the conclusion that the supply from TVNL, cannot be
0
included, the consequence will be that the units purchased from
TVNL would have to be kept out, which is not the intention
underlying levy of fuel surcharge. It is like 'escalation' clause,
and the additional cost has to be reimbursed. The High Court
E did not accept the same submissions as it will result in creating
a different base year. The relevant clause of the formula, after
amendment, reads, "the said increase to be calculated with
respect to the year 1991-92" (vide last para of clause 16.10.3).
The amendment has been made in the light of the decision of
the High Court. In the rejoinder affidavit the Board had taken
F the stand that the incremental rise in 1996-97 over the 1991-
92 base year from other sources including TVNL was less
compared fo DVC or NTPC. High Court did not appreciate this
logic. Increase in the unit rate has been similarly worked out in
the case of TVNL, but the relevant Base year column has been
G shown as blank though in the counter affidavit, para 37, it had
been stated that the same base year i.e. 1991-92 has been
applied, even when TVNL admittedly did not exist prior to 1996-
97. High Court held that it is not possible to allow the Board to
include purchase of electricity as a component of H3 without
H
BIHAR STATE ELECTRICITY BOARD v. PULAK 321
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
,.,
;.
suitably" amending the formula in accordance with law. A

34. As regards "deemed supply" by the Board to TISCO
High Court noticed that under a tripartite agreement between
the Board, the DVC and the TISCO, with the consent of the
State Government, the electricity is being supplied directly by
B
the DVC to the TISCO but such supply is treated as made-by
the Board to the TISCO. l.t seems to be an admitted position
- ... that the tariff rates of the Board are higher than the tariff rates
of the DVC. But since legally the TISCO cannot directly but
electricity from lhe DVC it has entered into agreement with the
Board to buy electricity directly from DVC but pay the amount
c
at the Board's rates. Though the amount is paid to DVC, such
payment is adjusted against the amount due from the Board
to it i.e. DVC. As seen above, DVC is one of the external
sources, represented by D1. The Board buys the electricity from
DVC, amongst others, and pays to it for the same. The increase D
AF in the average unit rate of purchase from it is reflected by D3.
However, so far as the supply made by DVC to TISCO is
concerned, it is treated as a "deemed supply" by the Board.
While it may be permissible to charge the TISCO at the rates
prescribed by the Board, i.e, at rates higher than the DVC rates, E
and it may also be permissible to treat sale of such electricity
sold by DVC to TISCO as deemed supply/sale by the Board
to TISCO. High Court held that two rates of supply/sale cannot
-( be permitted for the purpose of computing 03 in the ordinary
course, in the absence of any tripartite agreement referred to F
above, the Board would have supplied/sold electricity to TISCO
and charged at its rates. Such supply would have been made
from the electricity either generated by it at its own generating
station or purchased from external sources including DVC.
Clause 16.10.3.1 provides for computation of the cost of G
.,. .... generation at the Board's own generating station; as regards
purchase of energy from other sources, the said clause lays
down that the actual increase in average unit rate of purchase
will apply. If the Board is purchasing electricity from different
H
322 SUPREME COURT REPORTS [2009] 6 S.C.R.
' ..
A sources for the purpose of 03, E3, F3 etc. the actual increase
*
in the average unit rate of purchase so far as the particular
source is concerned, is to be taken into consideration. OVC
has thus to be treated as one source. The source being one
there cannot be two rates of purchase or increase in the
B average unit rate of purchase. It may be mentioned here that
NTPC sells electricity generated different power stations,
namely, Farakka, Kahalgaon Talchar or Anta and though the ~-

increase in the average unit rate is not the same, it charges
the Board at a uniform rate. It is an admitted position that
c though the OVC has revised its tariff from year to year the
Board so far has not recognised the revision and has been
paying it at the rates applicable in the year 1991-92. In the
agenda note dated 26.11.98 it has been clearly mentioned "that
during the 1996-97 the OVC rates for the purchase remained
D unchanged but the rates applicable to deemed supply to TISCO
rose upto 13P/kwh. High Court held that the Board cannot treat
the sale of electricity by the OVC to the TISCO as a separate
class or category for the purpose of computing 03. The
computation of 03 to this extent, was held to be not correct.
E 35. The computation of'the rates of fuel surcharge by the
impugned circular for the years 1996-97 and onwards so far
as it relates to the purchase of electricity from TVNL and
"deemed supply" by the Board to TISCO thus does not appear
to be in accordance with the formula. Fuel surcharge has to be
F calculated strictly within the framework of the formula. If any
extraneous element has crept in the computation to that extent
must be held to be not in accordance with law and accordingly
modified.

G 36. The computation of fuel surcharge was also assailed
before the High Court on the ground of non-disclosure of details
....
to A2, B2 etc. It was submitted that as the incremental rise in
the cost of generation at the Board's own generating stations
and the average unit rate of purchase of electricity from external
H
sources represented by different denominators in the formula
'

BIHAR STATE ELECTRICITY BOARD v. PULAK 323
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]
,.._ )-
is not the same, the Board ought to have given the details of A
the quantum of units sold respectively out of the units generated
and purchased from the external sources. The High Court
considered the plea to be of academic value. It is true that in
the matter of calculation of Fuel surcharge the units sold from
out of units generated at the Board's power stations and units B
purchased from external sources are shown by separate
denominators i.e. A2, B2, C2 and D2, E2, F2 etc. respectively,
~~ but it would appear that after the electricity generated at the
Board'.s stations or purchased from external sources are .fed
into transmission lines, they lose their separate identity as c
electricity generated at the Board's own power stations or
purchased from other sources. It is difficult thereafter to find out
as to how much of electricity fed in the trahsmission lines came
from the Board's own power stations and how much of it from
external sources.
D
.,..,. 37. Board's stand was that it pays large amounts as
delayed payment surcharge (DPS) to the DVC, NTPC etc.
contributing to further increase in the average unit rate of
purchase of electricity resulting in higher fuel surcharge and
• causing thus additional burden on the consumers. The fact that E
the Board has had to pay large amounts as DPS to the external
,A.-
agencies from which it has been purchasing electricity is more
or less an admitted position. The case of the Board, however,
-(_ is that the default in payment was mainly on account of defaults
committed by the consumers themselves. It is said that as much F
as 3,200 crores of rupees are c:lee from the consumers as a
result of which the Board is not in a position to pay to the
agencies resulting in additional burden by way of DPS. High
' Court found substance in the stand of the Board. The fact that
---"' the consumers at large have not been paying the dues on time G
.- _..,. and many of them have been making only part payment on the
strength of interim orders of Courts are facts which are not
disputed. If the consumers do not pay the dues to the Board,
they cannot be heard to make any complaint against payment
of DPS by the Board to the external agencies.
H
324 SUPREME COURT REPORTS [2009) 6 S.C.R.

A 38. We have referred in extenso reasonings of the High
Court.

39. It is stand of Board that while arriving at the average
.cost of purchase where the purchase prices vary weighted
B average is taken into account. This can be explained by
illustration of electricity purchased from different units of NTPC.
The Board purchases electricity normally from generating units
of NTPC at Farakka, Kahalgaon and Talcher at different rates.
During 1996-97 the Board purchased electricity from Farakka
unit at the rate of 147.28 paise/Kwh (inclusive of trans. Ch.)
C from Kahalgaon at the rate of 179.20 paise/Kwh and Talcher
at the rate of 70.33 paise/Kwh. The total power purchased from
NTPC during the said year was 4047.70 Mkwh for
Rs.61,989.32 lacs. For the purposes of calculating per unit rate
during the said year weighted average of the different rates was
D taken which comes to 153.15 paise/Kwh. The difference in cost
of purchase of electricity from NTPC during 1996-97 with
reference to the base year 1991-92 comes to 153.15 minus
83.65 =69.50 paise/Kwh (the average rate during 1991-92 was
83.65 paise/Kwh). Similarly, in the case of purchase of power

-
E from 'other source', there is more than one source for such
purchase and the rates of supply also vary. In such cases
average incremental cost is arrived at by the method of
weighted average.

F 40. There is no dispute with regard to levy of fuel surcharge
in respect of power generated by the generating stations of the
Board. The dispute in the writ petitions was with'regard to only
the method of calculation of fuel surcharge in respect of power
purchased by the Board, i.e. the rates of fuel surcharge in
G respect of the years 1996-97 and 1997-98.

41. The Board by its Circular dated 31.5.1999 fixed the
rate of fuel surcharge by applying formula for the years 1993-
94 to 1996-97. During the year 1996-97 the Board started
purchasing electricity from generating unit of TVNL established
H in 1996. By treating TVNL as a source falling under the
BIHAR STATE ELECTRICITY BOARD v. PULAK 325

.. ~
ENTERPRISES & ORS. [DR. ARIJIT PASAYAT, J.]

category of other source, the Board calculated weighted A
average cost of power as Rs.60.57 paise/Kwh.

42. Stand of the writ petitioners was that since TVNL came
into existence in the year 1996-97 there cannot be any
incremental cost in respect of electricity purchased from TVNL
B
inasmuch increase in the average unit rate of purchase of
electricity has to be calculated treating 1991-92 as the base
year. The other stand of the writ petitioners was that the Board
- ... has treated the supply of electricity by DVC to TISCO as
deemed supply by the Board to TISCO at a differeht rate which
is not in accordance with the formula. The stand of the writ
c
petitioners was accepted by the High Court. So far as TVNL
and deemed supply to TISCO are concerned, the High Court
held that there is no infirmity in the fixing of rates of fuel
surcharge except on the aforesaid two grounds. All other stands
taken in the writ petition was rejected . D
......
43. Judgment of the High Court is under challenge in these
appeals by the Board. An appeal has been filed by the private
companies so far as the conclusions of the High Court relating

- to non accounting of Rupees 100 crores paid by the private
· companies to the Board. According to the appellant-Board, the
High Court was not right in directing to re-work out the rates of
E

fuel surcharge for the years 1996-97 onwards after deleting the
purchase of electricity from TVNL as a component of H3 in the
..(,
formula. It is also submitted that the direction of the High Court
F
to re-work out the rates of fuel for the year 1996-97 onwards
: after treating the deemed supply i.e. supply of electricity by
DVC to TISCO as supplied by DVS to the Board as an element
~

''
of 03 in the formula was erroneous.
---'f
44. Though learned counsel for the appellant Board
,;
...... questioned correctness of High Court's conclusions, nothing G
material could be highlighted as to how the reasonings suffer
~'
from any infirmity. We are in agreement with the conclusions
of the High Court. The appeals filed by the Board are
accordingly dismissed.
H

\
326 SUPREME COURT REPORTS [2009] 6 S.C.R.

A 45. In the other appeals challenge is to non-accounting of "11
,,,,;

Rs.100 croms paid by the Coal Companies to the Board.
According to the writ petitioners, if the said amount has been
shown in the accounts the rate of fuel surcharge would have
been different. The High Court noticed that this aspect of the
8 matter has been dealt with by the Board in its rejoinder affidavit
wherein it has been stated that as against the total claim of
Rs.356.20 crores on account of loss due to grade slippage, "'-

short supply of coal, supply of stones etc. the Coal Companies
have agreed to pay Rs.100 crores in full and final settlement of \,.. -
c the claim. But though such decision was taken on 30.8.1998
actual payment has not been made till date. High Court
observed that payment of the amount would be relevant
consideration while calculating the rate of fuel surcharge for the
year 1998-99 and not 1997-98.
D 46. We direct that the actuals be worked out within three
months from today. The adjustment of Rs.100 crores be worked
out accordingly. The appeals are accordingly disposed of. .....

R.P. Appeal disposed of.

-

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