Power Plant Is Not ‘Goods’ – No Deemed Export Benefits Available – Supreme Court Dismisses Nabha Power’s Claim for Compensation Under PPA

“Withdrawal of Benefits Does Not Constitute ‘Change in Law’ When No Entitlement Existed in First Place” –  In a significant ruling Supreme Court of India dismissed the claims of Nabha Power Ltd. (NPL) and Talwandi Sabo Power Ltd. (TSPL) seeking compensation under the Power Purchase Agreement (PPA) for the alleged withdrawal of deemed export benefits under the Foreign Trade Policy (FTP) 2009–2014.

A bench comprising Justices Augustine George Masih and B.R. Gavai held that the appellants were never eligible for such benefits, and thus the question of a “Change in Law” under Article 13 of the PPA did not arise. The Court reaffirmed that only statutory notifications, not press releases or circulars, can constitute “law” for contractual claims and clarified that “an immovable, assembled power plant cannot be treated as ‘goods’ under the FTP.”

The appeals arose from a common judgment passed by the Appellate Tribunal for Electricity (APTEL) in 2017, which upheld the decision of the Punjab State Electricity Regulatory Commission rejecting claims by NPL and TSPL for compensation under Article 13 of their respective PPAs.

Both companies had developed coal-based thermal power plants in Punjab, claiming that they had factored deemed export benefits under Para 8.3 of the FTP into their bids. They argued that the withdrawal of such benefits via DGFT circulars and FTP notifications after the bid cut-off date (October 2, 2009) constituted a “Change in Law”, entitling them to tariff adjustments and compensation.

The claim was rejected by the State Commission, APTEL, and now finally by the Supreme Court.

Deemed Export Benefits Not Applicable – Power Plant Not “Goods”

The Court made it emphatically clear that NPL and TSPL failed to meet the essential preconditions under the FTP.

“The foremost prerequisite to avail the deemed export benefits is limited to ‘goods’. The term ‘goods’, in common parlance and under tax law, denotes movable items and shall exclude immovable items.” [Para 59–60]

Citing Delhi Cloth and General Mills and several central excise precedents, the Court ruled: “An immovable property, especially a machinery embedded to earth, as in the instant case, would fail the ‘marketability test’... It is not possible within the given canvas to hold that an embedded power plant... would qualify as ‘capital goods’ for entitlement under the FTP.” [Para 61]

The Court concluded that a thermal power plant constructed on-site is not “goods”, and thus does not qualify for deemed export incentives under the FTP regime.

No Supply Under ICB – Another Fatal Deficiency

In addition to failing the “goods” test, the Court found that the appellants did not meet the requirement of procurement under International Competitive Bidding (ICB).

“No evidence has been produced by the Appellants to determine whether such ICB process was adopted for procurement of goods... Reliance on tariff-based bidding for selection of developer cannot substitute ICB for supply of goods.” [Para 72]

The Court held that deemed export benefits require procurement of goods under ICB either at the Independent Power Producer (IPP) stage or the EPC stage, which the appellants failed to demonstrate.

FTP Notifications and Press Releases Are Not “Law” Under the PPA

Responding to the appellants’ assertion that DGFT notifications and a Cabinet press release dated 01.10.2009 constituted a “Change in Law”, the Court reaffirmed the test set out in its previous decisions, particularly in Nabha Power Limited v. PSPCL, (2020 SCC OnLine SC 1363):

“Only duly promulgated notifications constitute ‘law’. A press release is not a ‘binding command’... Therefore, the Press Release dated 01.10.2009 does not amount to Change in Law.” [Para 44]

It further clarified: “Even the DGFT notifications relied upon by the appellants were merely clarificatory. They did not alter or create legal entitlements. Hypothetically, even if they did, the appellants were never entitled to the benefit in the first place.” [Para 76–77]

No Entitlement, No Compensation

The Court concluded that because no entitlement existed, the appellants cannot claim restitution under Article 13 of the PPA:

“There cannot arise any question for compensation... as a means of restitutionary relief. The appellants have not been able to establish either the entitlement or the existence of a Change in Law.” [Para 79]

Legitimate Expectation Argument Rejected

Rejecting the appellants’ plea that they were misled by the government’s press release and DGFT practices, the Court firmly held:

“The Press Release dated 01.10.2009 created no enforceable legal right. Legitimate expectation cannot arise from executive communications which are neither law nor contractually binding.” [Para 43]

This judgment reiterates a strict interpretation of “Change in Law” clauses in commercial power contracts and limits compensation claims to only those changes that are statutory or regulatory in nature. It also affirms that assumptions or anticipations of future policy benefits, however reasonable, cannot ground legal entitlements under Article 13 of a Power Purchase Agreement.

In the words of the Court: “The withdrawal of FTP benefits did not constitute a ‘Change in Law’ because the appellants were never entitled to those benefits under the law prevailing at the cut-off date.” [Para 74]

Thus, the appeals of Nabha Power Limited and Talwandi Sabo Power Limited were dismissed, and the findings of the State Commission and APTEL were upheld in full.

Date of Decision: August 19, 2025