India: Karnataka High Court Rules On Entitlement Of Software Industries To Concessional Rate Of Power Tariff Under HT2(A) Category

Last Updated: 8 January 2018
Article by Nalina Mayegowda and Avinash Balakrishna

Most Read Contributor in India, December 2017

On 27 November 2017, the Karnataka High Court (Court) in Cognizant Technology Solutions India Pvt Ltd v. Bangalore Electricity Supply Company and others (WP 36174/2017) decided issues regarding the entitlement of software development industries to concessional power tariff under HT 2(a) category i.e., industrial tariff. The Court also decided on the validity of various circulars of the Government of Karnataka (Government) and Bangalore Electricity Supply Company (BESCOM/Respondent), which prescribed the fulfilment of certain terms and conditions in order to qualify for the concessional tariff and consequent, imposition of commercial tariff on the ground of non-fulfilment of the procedural requirements.

Factual background

Cognizant Technologies Private Limited (Cognizant/Petitioner) had set up a 100% software oriented unit under the Software Technology Park Scheme (STP Scheme).

BESCOM, issued a demand notice dated 26 July 2017 (Demand Notice), demanding payment of commercial tariff on the ground that the Petitioner was not entitled to the concessional power tariff since it failed to obtain requisite certificates from the Director of Information Technology and Biotechnology (ITBT), as stipulated in various circulars issued by the Government and BESCOM.

The Demand Notice included a threat of disconnection of supply of electricity in the event the Petitioner failed to pay commercial tariff. Aggrieved by the demand notice, the Petitioner filed the writ petition challenging, in particular, the demand notice issued by BESCOM and in a larger context, the validity of the various circulars.

Main contentions of the Petitioner

  • The Petitioner is registered with the Software Technology Parks of India (STPI) under the STP Scheme as a "software industry" and a certificate to that effect was issued by STPI on 3 July 2000.
  • The Millennium IT Policy, 2000 (Millennium Policy) of the Government treats software companies as industrial consumers, and not commercial consumers and electricity tariff applicable to such industrial consumers will be levied on such companies.
  • Subsequently, on 6 December 2006, the Director of KBITS (a society established to achieve the objectives contained in the Millennium Policy) issued a certificate, stating that the Petitioner is entitled to HT2(a) tariff.
  • On 7 November 2007, Secretary, ITBT issued a communication, expressly stating that the Petitioner is entitled to concessional power tariff from 3 July 2000, by virtue of being registered under the STP Scheme.
  • Being entitled to the concessional power tariff, the benefit cannot be withdrawn by issuance of circulars by the Government or BESCOM, which are contrary to the Millennium IT Policy and the earlier circulars of the Government.
  • BESCOM has not challenged the status of the Petitioner, as a "software industry" and as such, the benefit of concessional tariff cannot be taken away.
  • When a department of the Government grants the benefit of concessional tariff to the Petitioner, BESCOM, which is a fully owned Government company cannot issue circulars to the contrary.  Such actions, in fact, have the effect of nullifying the benefit extended to software industry.

Main contentions of the Respondent

  • The right of the Petitioner to seek concessional power tariff was subject to it making an application to KBITS as per the circular of the Government dated 10 January 2002 and verification by KBITS of the power requirements of the Petitioner.
  • Cognizant, having made an application to KBITS only in 2006, is entitled to concessional tariff after the application was made and not prior to it.
  • The Electricity Ombudsman, in a similar case, held that the requirement of making such application to KBITS cannot be done away with and benefit of concessional tariff cannot be extended without there being an application.
  • When the right of concessional tariff is subject to fulfilment of certain requirements, the same ought to be fulfilled without which the benefit cannot be extended.

Decision of the Court

The Court, after hearing the parties, allowed the writ petition holding that Cognizant being in the business of software development is entitled to concessional power tariff. The Court observed that the Petitioner had obtained all relevant certificates from the STPI, Department of Industries and Commerce, and also from the Director of ITBT. The Court further noted that the certificate issued by the Director of ITBT did not find or observe that the Petitioner was not engaged in the business of software development throughout or that the Petitioner was not carrying on any other incidental or ancillary business other than software development.  Therefore, the Court held that consumption of power and levy of tariff could not be segregated into two or more parts i.e., concessional tariff under HT2(a) for part of the consumption and commercial tariff for the remaining.

The Court held that merely insisting upon the Petitioner to obtain such certificate from the Director of ITBT in 2002 when the Millennium Policy was introduced does not disentitle Petitioner when it claims that it was engaged in software development throughout. The Court also found that the ground of non-compliance of conditions stipulated in the circulars of government and BESCOM was not reasonable, plausible nor sufficient to ignore or brush aside the certificates issued by other departments of Government. The Court went on to hold that the contention of BESCOM has no merit or substance and therefore allowed the writ petition with costs.

Comment

The circulars of Government and BESCOM, which prescribed conditions contrary to the Millennium Policy had created havoc and consequent demand notices raised huge demands on the software industry. Such reversal of policy had, in fact, discouraged and dampened the software industry in Karnataka. The judgment of the Court has, in effect, nullified all the circulars of the Government and BESCOM which were contrary to the Millennium Policy and affirmed the entitlement of an industry engaged in software development to concessional power tariff.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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