Legal Commentary On Non-Availability Of Deemed Export Benefits To Thermal Power Plants Under India's Foreign Trade Policy

Legal Commentary on Non-Availability of Deemed Export Benefits to Thermal Power Plants under India's Foreign Trade Policy

1. Introduction

The analysis regarding the qualification of coal-fired thermal power plants for deemed export benefits, as outlined in the Foreign Trade Policy, 2009–2014 ("FTP"), has persistently emerged as a contentious element in tariff evaluation and the distribution of contractual risks. This matter has gained renewed significance in light of the ruling in Nabha Power Limited v. Punjab State Power Corporation Limited & Ors.¹, which now stands as a pivotal reference point for stakeholders within the industry.

Rather than solely focusing on statutory interpretation, the ruling redefines the framework within which developers and procurers must navigate their bid assumptions under Power Purchase Agreements (PPAs). Historically, numerous bidders have factored projected FTP incentives into their proposed tariffs or subsequently invoked Change-in-Law clauses to pursue compensation. The Court's interpretation now modifies this dynamic, signalling to the sector that anticipations related to the FTP must be grounded in explicit policy language, rather than assumed fiscal entitlements.

2. Factual and Procedural Background

1. Origin of the Dispute

The contention originates from two significant coal-fired thermal power initiatives in Punjab, Nabha Power Limited (NPL) and Talwandi Sabo Power Limited (TSPL). Both entities executed their respective Power Purchase Agreements (PPAs) subsequent to the reorganization of the former Punjab State Electricity Board.

NPL was initially founded to establish a 2×700 MW facility at Rajpura, which was subsequently transferred to a private developer through the competitive bidding process of 2009.

2. The Core Claim

Following the execution of their PPAs, both developers asserted their entitlement to deemed export incentives under the Foreign Trade Policy (FTP). The denial of such benefits led the developers to invoke the Change in Law provision as delineated in Article 13.1.1(ii) of their respective PPAs. Their argument posited that FTP benefits were in existence at the time of bid submission. The later withdrawal constituted a policy modification post-bid that warranted compensation.

3. Regulatory and Judicial Journey

In 2012, the State Commission dismissed the petitions, asserting that a developer cannot concurrently benefit from both the Mega Power Policy and the FTP framework, thereby nullifying any compensatory claims. This ruling initiated an extended litigation process involving:

1. remand instructions,
2. reassessment orders,
3. numerous appeal rounds before the Appellate Tribunal for Electricity (APTEL), and
4. eventual escalation to the Supreme Court pursuant to Section 125 of the Electricity Act, 2003.

Therefore, the Supreme Court was ultimately mandated to examine crucial legal issues concerning the qualification for deemed export incentives and the importance of "Change in Law" in accordance with the terms of the PPA.

3. Issues Before the Court

Rather than addressing the dispute as a singular assertion for financial incentives, the Supreme Court redefined the issue into three doctrinal inquiries necessitating sequential analysis:

1. Existence of Deemed Export Entitlements at the Bid Cut-off

The primary question pertained to whether, as of the bid cut-off date, the appellants possessed any legally recognized entitlement to deemed export benefits pursuant to Paragraph 8.3 of the FTP 2009-14. This involved evaluating whether subsequent public notifications or clarifications issued by the DGFT could retroactively influence the appellants' eligibility, thereby constituting a "Change in Law" under the PPA.

2. Impact of Cabinet-Level Policy Decisions

A second, autonomous inquiry focused on the legal implications of Cabinet decisions, specifically those disseminated through press announcements that altered threshold criteria for deemed exports. The Court scrutinized whether such executive communications could modify contractual rights and if they fulfilled the legal criteria to qualify as a "Change in Law".

3. Availability of Restitutionary Remedies

The final question emerged only if the appellants met the prior thresholds: if a "Change in Law" could be substantiated, what would be the nature and scope of compensatory remedies accessible to them within the PPA framework?

4. Legal Reasoning and Interpretation of the Court

1. Contractual Interpretation as the Initial Consideration

The Court reiterated that the PPA definition of "Change in Law" must be understood in its plain, conventional meaning. The clause contemplated legislative or quasi-legislative modifications, enactment, amendment, repeal, or alteration of law, occurring subsequent to the bid cut-off date. Thus, parties cannot extend the definition through conjectures or business expectations.

2. Absence of Legislative Effect

Building on its prior rulings, the Supreme Court reaffirmed that a Cabinet decision or press release cannot modify the legal rights of private entities unless such decision is formally published in the Official Gazette. The overarching statutory framework, including Section 21 of the General Clauses Act, stipulates that appropriate publication is required for a policy alteration to possess the force of law. Consequently, policy alterations communicated via press releases cannot be utilized to activate the PPA's "Change in Law" provision.

3. No Requirement to Further Examine DGFT Notices

Given that the Court ultimately determined that the appellants were never entitled to deemed export benefits under the FTP, it concluded that the subsequent DGFT were extraneous to the contractual evaluation. In the absence of a foundational right, the issue of whether such notices constituted a "Change in Law" did not arise.

5. Assessing Eligibility for Deemed Export Advantages

Instead of considering the Foreign Trade Policy (FTP) as a comprehensive incentive framework, the Court refined the requirements outlined in Chapter 8 of the policy into a series of stringent, cumulative stipulations. A claim is deemed successful only when every criterion is fulfilled independently.

1. The Advantage Must Relate to "Goods"

The Court clearly differentiated between movable goods and immovable properties. Civil infrastructure, boilers, turbines, and the composite structure of a power plant do not fit within the FTP's definition of "goods." A thermal power plant, regardless of its assembly from various components, is not classified as a movable marketable item.

2. The Goods Must Be "Produced in India"

The Court relying on legal precedents (Delhi Cloth & General Mills and others)², asserted that "manufacture" would necessitate alteration, the emergence of a new movable product, a unique name, character, or application. The activities involved in constructing a power plant do not fulfill this criterion.

3. There Must Be a Delivery of Goods to the Project

FTP advantages are contingent upon verifiable supply transactions. The self-construction by the Special Purpose Vehicle (SPV) associated with the project cannot be equated with "supply" for deemed export objectives.

4. The Delivery Must Be Executed by a Contractor or Sub-Contractor

The policy anticipates supply chains that incorporate independent contractors functioning within the International Competitive Bidding (ICB) framework. This condition was not satisfied by the appellants.

5. Procurement Must Adhere to International Competitive Bidding (ICB)

Adherence to ICB protocols is obligatory and appellants failed to demonstrate such adherence. Given that none of these conditions were fulfilled, the Court determined that the appellants lacked a foundation to request deemed export advantages. The endeavor to classify the assembled plant and its components as "capital goods" under the deemed export framework was similarly dismissed.

6. DGFT Notifications and Post-Bid Clarifications

The appellants sought to validate their claim by citing DGFT notifications promulgated on 28 December 2011 and 21 March 2012. The Court refuted this contention for two primary reasons:

1. Clarificatory, Not Substantive Changes

The DGFT communications were deemed interpretive rather than transformative. They did not modify the definition of "goods," broaden eligibility parameters, or establish any new categories of beneficiaries.

2. No Basis for Change in Law Compensation

Given that the clarifications neither established nor altered substantive rights, they could not invoke the Change in Law provision of the PPA. A circular of an interpretative nature cannot retroactively create fiscal rights nor impose compensatory obligations on the procurer.

7. Conclusion & Implications

The ruling sets a clear legal precedent, deemed export advantages under the Foreign Trade Policy (FTP) cannot be claimed for integrated thermal power facilities, which require permanent infrastructure, civil engineering, and the assembly of diverse components.

It emphasizes the imperative for stakeholders, project developers, financiers, and power purchasers, to meticulously examine bid documents and underlying assumptions prior to integrating FTP benefits into the financial framework.

"Change in Law" provisions PPAs must henceforth be approached with increased vigilance: subsequent policy clarifications or administrative directives may not adequately furnish relief, particularly in instances where the foundational statutory eligibility was inherently flawed.

For upcoming infrastructure or power-sector initiatives, this ruling acts as a legal benchmark regarding the restricted interpretation of "goods," "manufacture," and "supply" as delineated by the FTP framework. Stakeholders must arrange transactions including procurement, contractual agreements, and supply chains in adherence to the stringent requirements of the FTP if they seek to leverage deemed export benefits.

More generally, the ruling reinforces the tenet of contractual integrity and statutory adherence over commercial anticipations or industry norms. Organizations must not assume entitlement to benefits without thoroughly scrutinizing statutory definitions and eligibility criteria.

Footnotes

1 2025 INSC 1002

2 1962 SCC OnLine SC 148

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.