The Supreme Court on Friday ruled that Indian Railways cannot claim the status of a “deemed distribution licensee” under the Electricity Act, 2003, holding that it functions as a “consumer” of electricity and is therefore liable to pay cross-subsidy surcharge (CSS) and additional surcharge (AS) to distribution companies.

A Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma said the Railways’ electricity infrastructure is meant exclusively for its own operational needs, including traction systems, signalling and station-related services, and does not involve supply of electricity to outside consumers.

“The erection of transmission lines or distribution lines, as argued by the appellant (Railways), cannot bestow upon the appellant the authorisation to carry out supply of electricity that is procured by it, to third-party consumers... It is only when electricity is sold or provided to consumers outside the operational domain of the Railways that the activities undertaken by the appellant could intersect with the obligation of a distribution licensee,” the Bench observed.

The Court further said that Railways purchases electricity only for self-consumption and supplies it solely within its own network.

“The appellant is a consumer within the meaning and scope of Section 2(15) of the Electricity Act. It purchases electricity exclusively for its own use and supplies it to no one but its own constituents. Thus, like any other consumer, cross-subsidy surcharge and additional surcharge are applicable to the appellant,” the judgment added.

The dispute centred on Railways’ contention that it qualified as a deemed distribution licensee under the third proviso to Section 14 of the Electricity Act.

It had argued that its extensive electricity network for railway operations constituted a “distribution system”, entitling it to procure power through open access without paying cross-subsidy surcharge and additional surcharge.

The issue dates back to 2015, when Indian Railways sought connectivity for procurement of 100 MW electricity through inter-state open access for traction substations. Following objections over its legal status, the matter reached the Central Electricity Regulatory Commission (CERC), which ruled in favour of Railways and recognised it as a deemed distribution licensee.

That finding was subsequently overturned by the Appellate Tribunal for Electricity (APTEL), which held that Railways was not engaged in distribution of electricity in the manner contemplated under the Electricity Act. Railways then challenged the APTEL ruling before the Supreme Court.

In the judgment authored by Justice Sharma, the Court held that an entity can qualify as a deemed distribution licensee only if it satisfies two conditions under Section 14 of the Act: operating and maintaining a distribution system for supply of electricity to consumers, and supplying electricity within a defined area of supply.

According to the Court, Railways failed to meet these requirements because its electricity network exists solely for internal consumption and does not involve supply to independent consumers within any designated area of supply.

The Bench also flagged the financial implications of exempting high-volume consumers such as Railways from payment of surcharges.

“When high-volume, high-revenue consumers such as the Indian Railways choose to procure electricity through open access, distribution licensees may be left with underutilised infrastructure and power purchase commitments, leading to financial strain,” the Court observed.

It added that “the cross-subsidy surcharge and the additional surcharge are critical for maintaining the financial health and operational capacity of the distribution sector, enabling it to invest in infrastructure upgrades, ensure reliable service, and continue to meet its obligations to all consumer categories”.

Dismissing the appeal, the Court directed the respondent distribution companies to calculate and issue detailed statements of outstanding cross-subsidy surcharge and additional surcharge payable by Railways, segregated according to the relevant area of supply and period of open-access procurement.

The Bench said Railways would be given time to respond to the claims, subject to scrutiny by the appropriate electricity regulatory commission.