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 (a)    2008 ELR (APTEL) 916 NTPC versus CERC

              and Ors.

       (b)    2009 ELR (APTEL) 337 NTPC versus CERC

              and Ors.





                                    Judgment in Appeal No. 82 of 2009


(iii)   Capitalisation  of   certain           Renovation        &
        Modernization (R&M):

The Central Commission has wrongly disallowed an amount of Rs. 26.16 lakhs incurred by the NTPC on certain R&M works merely because the NTPC has booked the same under the Profit & Loss account. In respect of this issue, it is submitted by the Appellant that these expenses have been incurred towards construction of concrete road, air circuit breakers etc., which are part of the R&M works. These expenses are essential part of the successful execution of R&M works and are of capital nature as they give benefit of enduring nature. As such, the said expenses have to be included in the capital asset notwithstanding the Accounting Standards providing for the inclusion of the same in the Profit & Loss accounts. As a matter of fact, the Central Commission in respect of the earlier years allowed the capitalization of similar such expenditure while fixing the tariff.

(ii) Whether the amount of Rs. 9.35 lakhs incurred by the NTPC during the period from 2004-5 to 2006-07 Judgment in Appeal No. 82 of 2009 towards interest during construction can be disallowed while not accepting the First In First Out (FIFO) method being followed by NTPC and leaving the part of the capital contributed by NTPC towards assets unserviced?

(iii) Whether the amount of Rs. 26.16 lakhs incurred by the NTPC for certain Renovation & Modernization works be disallowed along with the capitalization of R&M works because the Accounting Standards require the Appellant to book the same to the Profit & Loss Account?

" "The First in First Out" method cannot be adopted. However, the deployment of internal resources of NTPC which is in addition to the equity contribution should be considered as a deemed loan from the NTPC to the project. NTPC is entitled to the deemed interest on such loan during construction."

Judgment in Appeal No. 82 of 2009

30. However, while refuting this plea made by the Appellant, the Respondent (GRIDCO) in the Additional Written Statement has raised an issue by stating that in case of existing generating stations, the issue of disallowance of interest during construction will not arise at all. As a matter of fact, the Respondent urged that no interest during construction is admissible to the Appellant in the present case and even what has been allowed in the impugned order ought not to have been allowed. The Respondent in his cross reply in Appeal No. 81 has objected to the vary basis for accepting the interest during construction by the Central Commission. In regard to the above issue, the GRIDCO has quoted the order dated 22.07.2008 passed by the Central Commission in Petition No. 32/07 in the case of Farakka Super Thermal Power Station, which is another generating station of NTPC, whereby the Central Commission rejected the claim of NTPC for capitalisation of interest during construction on year to year basis. However, the learned counsel for the Appellant has contended that the relevance placed by the GRIDCO on the above Judgment in Appeal No. 82 of 2009 order dated 22.07.2008 in Petition No. 32/07 is not valid as the said order has been modified by the order subsequently passed by the Central Commission on 23.12.2009. The relevant observation in the said order is as under:

31. So, in view of the above order which has modified the earlier order dated 22.7.2008, the contention of GRIDCO that there is no provision for inclusion of IDC on the additional capital expenditure in the Tariff Regulations 2004 is without any merit. The GRIDCO has alleged that NTPC is deriving double benefit namely servicing of capital asset as well as interest during construction for the same expenditure. This is not factually correct. The NTPC has claimed interest during construction till the time the capital assets are into use and capitalisation occurs. The NTPC is entitled to service the capital only after capitalisation. It is clear that as per the Tariff Regulations both are admissible at different periods. The NTPC has not claimed for both the periods as alleged by the GRIDCO. Therefore, the NTPC is entitled to the IDC as Judgment in Appeal No. 82 of 2009 allowed by this Tribunal in the 2 judgments referred to above to the extent of repayment of loan from internal resources of NTPC or deemed loan without interfering with Commission's decision not to follow FIFO Method. Accordingly, the same is allowed.