Supreme court hereby decided on 3 issues.
1. Whether the ownership in CGP and consumption have to be proportionate?
SC agreed with it mentioned that Rules ask captive users to hold at least 26% in the CGP and consume 51% energy with +/-10% variation (for association of persons). There is no upper cap defined in the rules. Further (i) CGP ownership can transfer through sale of shares and the new entity would still deemed to have ‘set up’ the plant. (ii) ownership of 26% has to be continuous and be sustained throughout the year from April 1 till March 31 for the plant to be qualified as CGP
2. How to interpret the additional requirement of consuming 51% energy by captive users within +/-10% variation strictly applicable to association of persons (companies qualify as persons in the Captive Rules)?
SC agreed with an earlier judgment and elaborated the concept further. Considering 51% consumption requirement and 26% ownership requirement, every captive user needs to consume 1.96% of the total energy generated with a relaxation of 10% on the downside. If any captive user is not meeting that, the same is removed from the set of captive users. The two tests of 51% consumption and 26% ownership are applied to rest of the Captive users and it is checked whether the remaining captives users can now still pass the requirements and whether plant can be qualified as a CGP. If so then remaining users qualify as captive and if not, then plant loses its captive status and none of them get waivers of CSS and AS.
Further SC also stated that if a user has varying ownership in the CGP in the course of the year, their ownership will be decided using the concept of weighted average. The annual consumption requirement of that captive user will be tested against this weighted average shareholding.
3. Whether a company set up as an SPV must meet the proportionality requirements or not?
SC says companies or body corporates may come together and set up another company as a SPV, with a
common purpose to achieve the common benefit of becoming captive user(s). Hence they are to be treated as an association of persons and the rule of proportionality will apply to them as well
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